Letters to the Editor
Venezuelan oil reserves
----- Original Message -----
From: Oliver L. Campbell
Cc: Ohep Elio
Sent: Sunday, October 10, 2010 5:33 AM
Subject: Venezuelan oil reserves
Dear Mr Cobb, I read your interesting article Is Venezuela the Next Flashpoint for Oil? in Petroleumworld and wish to make a couple of comments. "I'm inclined to believe that a significant portion of this heavy oil will never become economically recoverable." I would question this assertion. The Orinoco Oil Belt is easily accessible on land , the oil is not very deep down, the production technology was solved by Total, Exxon et al several years ago. There are two problems: a)the oil congeals to a tar-like consistency when it reaches the surface and cools down so it is mixed with a diluent and pumped to the coast--the diluent is recovered and sent back to the production area, and b) the oil has to be upgraded to at least 16º API to make it a viable product. The total cost of production and upgrading is around $15 a barrel. Compare this with offshore areas like the North Sea, Angola, the Gulf of Mexico and Tupi offshore Brazil. There is little point arguing over the quantity of the producible reserves in the Orinoco Oil Belt. My geologist colleagues question why a 20% recovery factor has been assumed when the current rate is only 9%. But, taking a practical approach, does it really matter if the recoverable reserves are stated as 500 billion or 250 billion barrels? The latter would provide a production of 5,000,000 b/d for 137 years by which time who knows if oil will be used as fuel. Back in 2003, I wrote an article on peak production. I also came to the conclusion that wars could break out over access to oil--though I think it is an unlikely scenario.
RANGE OF SCENARIOS
Oil depletion is a fact and so is peak production. It will be reached one day: the question is when? The rate of consumption is now increasing annually as the developing countries' economies take off. If this increase is acute, the day of reckoning can move forward. So what will happen when the peak is reached? There are endless scenarios but let me just put forward three:
1) Rationing . Nations agree a world organisation, such as the United Nations, will put in place a system to ration supplies and regulate prices. Agreement on allocation will be extremely difficult but not impossible.
2) Market forces . Prices will be bid up, say, initially from $30 to $60 a barrel and then even higher. The economies of the rich OECD countries (with 20 percent of the world's population) will not suffer that much. However, those of the developing world (with 80 percent of the world's population) will be hard hit, particularly so in the poor countries where per capita GDP is low. The wider divide created between rich and poor nations will cause considerable tension.
3) Confrontation. Wars will break out for the control of oil supplies. Alliances will be formed between large producers and powerful consumers. Huge amounts will be spent world-wide on armaments to the detriment of spending on social needs.
Regards, Oliver L Campbell
Petroleumworld News 09/27/2010
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