Peak oil doomers beware. The Wall Street Journal is not on your side.
The Journal reported Monday on Saudi Arabia's interest in new steam-injection technologies that will assist in the extraction of heavy crude oil that has previously been hard to get out of the ground. The basic idea is to heat up the molasses-like crude lurking deep below to a point where it gets liquid enough to easily pump out. The story is a typical paean to the power of the price mechanism: High oil prices make new schemes of oil extraction economical.
But here's how the Journal's reporters framed the story in the second paragraph: "If it succeeds in overcoming the technical hurdles," wrote Bhushan Bahree and Russell Gold, "the effort could significantly increase Saudi Arabia's oil reserves over the next several years, potentially adding some slack to tight energy markets. It would also be a blow to so-called peak-oil theorists who have forecast that world oil production is on the brink of peaking."
A blow? Ah yes. All over the world, disciples of M. King Hubbert are staggering backward, shaken to their foundation by the news that Saudi Arabia is trying to figure out new ways to get every last drop of oil out of the ground. Isn't that a little bit odd? Don't you think that so-called reporters who follow the oil business would grasp that a renewed emphasis on innovative oil-extraction technologies is a natural response to exactly the trends that peak-oil theorists have long been pointing out?
The Journal story also noted that production is "massively gearing up" in the Canadian tar-sands region centered in the province of Alberta. Again, ostensibly more proof that the rising price of oil will result in the development of new resources to make up for what is being so rapidly consumed. In that light, a couple of recent articles in the Canadian Press are interesting. Reporter James Stevenson writes that cost overruns for major oil-sands projects are hitting unprecedented levels, even for an industry in which costs always balloon well beyond the original prediction. There are still profits to be made when oil is at $75 a barrel, but as one energy analyst noted, referring to a Shell Canada project, "If you're talking about something that cost you six times as much as it did six or eight years ago, even with the move we've had in oil prices, we're getting these things back to where the economics ... are going to get skinny in a hurry."
The Journal also reports the Saudi oil minister declaring that if the new steam-injection technique being tested by Chevron works, it will add "tens of billions of barrels" to Saudi Arabia's reserves. That would be useful information if anyone outside of Saudi Arabia actually had a firm handle on how big the nation's oil reserves currently are. Saudi Arabia claims to have 260 billion barrels of reserves, but that number has come under intense skepticism.
James Hamilton, at the always hard-nosed Econbrowser, notes that even with the price of oil reaching $75, Saudi Arabia's daily production of oil in April, May and June was about 400,000 barrels below its daily average of 2005. Hardcore peak oilers cite those numbers as evidence that Saudi Arabia can't pump enough to meet demand. Others say the drop-off is evidence that the current price is an artificial result of hedge fund speculation in oil futures, and that current demand just isn't there. Still others claim the problem is due to the heavy sulphur content of Saudi Arabian oil, which is less desirable on world markets because it's harder to refine.
Only Riyadh knows the truth. The rest of us can just watch with great interest as one of the greatest stories of the 21st century plays out. As for the peak oilers still stumbling from the body blow of new steam-injection technologies, I have no doubt that they will soon regain their footing. Because most of them are well aware that the exploitation of new reserves of oil via new technologies, encouraged by the economics of high prices, will likely push the date at which we do hit the "peak" -- that moment when we extract the most oil per day that we're ever going to extract -- a little further into the future. But whether that date is tomorrow, 2010, 2020 or 2100 hardly seems the point. Demand continues to rise, and cheap oil gets harder and harder to find. There's little "so-called" about the direction that curve is headed.