The Coming Boom in Oil Recovery
Look at companies that are bringing new technology to an old industry.
The peak oil theory is simple on the surface: Over the long haul, oil supplies will diminish. Production rates will reach a peak and then decline.
However, the simple Hubbert Curve doesn't account for the addition of new hydrocarbon provinces (i.e. deep offshore, Kurdistan) or technology improvements. One only need to look at the North American natural-gas price to see a glaring example of how technological innovation (shale gas production) can disrupt supply forecasts.
Tony Hayward, BP's (BP) chief executive, was quoted in the Telegraph this week as saying "proven natural gas reserves around the world have risen to 1.2 trillion barrels of oil equivalent, enough for 60 years' supply -- and rising fast."
I believe that the peak oil argument has been oversimplified to the point that adherents can't comprehend any outcome except for a disastrous global oil shortage. Ever-rising Chinese automobile sales might lead us down that path but I see some innovative solutions that don't require much exploration.
I spoke about the coming boom in enhanced oil recovery at several conferences last year, but this big-picture concept is moving to the forefront. We know that, on average, only one-third of the original oil in place (OOIP) found in oil fields is produced. The other two-thirds is stranded.
BP Group's vice president for technology, Tony Meggs, talks about enhanced oil recovery in the BP publication Tackling the Third Trillion.
The worldwide average recovery factor for conventional oil reservoirs is around 35 per cent of the original oil in place, although some individual fields achieve 50-60 per cent recovery. Clearly any improvement on this, even by small increments, could have significant benefits.
For example, a one per cent increase in recovery factor from BP's reservoirs would yield an additional two billion boe, notes Meggs. On a worldwide basis, a conservative five per cent increase in recovery would yield an additional 300-600 billion boe.
Leonardo Maugeri is group senior vice president for corporate strategies and planning at the Italian energy company ENI. In his recent Scientific American article, he predicted that by 2030, more than 50% the known oil will be recoverable (remember the current number is ~35%). This set of a firestorm of rebuttals in the special section of the Internet reserved for peak-oil adherents.
Water-flooding of old fields is the most common method of enhanced oil recovery. This technology was initially discovered by accident in 1865 and became widely used in the 1950s. Since then, the basic concept has been modified to include the injection of low salinity water, chemicals (like surfactants and polymers), bacteria, and carbon dioxide (also known as tertiary recovery). To date, all the improvements in oil recovery from discovered oil fields have come from changing the injected fluids or the orientation of the well bores. Improved injection methods are increasing the efficacy of enhanced oil-recovery projects and early indications are that the recovery of 50-60% of the original oil in place will be achievable, even at current prices.
Fossil fuels may be falling out of favor but it won't be for a lack of abundance. Remember the words of former OPEC oil minister, Sheik Yamani: "The stone age didn't end because we ran out of stones." I look forward to new technologies bringing us "better" energy sources.
Given the recent move in the oil price, my firm likes the Oil Service Holders ETF (OIH). We especially like smaller service companies that are providing meaningful improvements to their clients. These include:
Wavefront Technology Solutions (WEE.V) -- A patented dynamic injection process leads to greater oil recovery.
Xtreme Coil Drilling (XDC.TO) -- Drilling deeper and faster using proprietary coiled tubing rigs.
Opsens Inc. (OPS.V) -- Provider of fiber optic pressure/temperature sensors that can withstand the extreme conditions of a SAGD steam chamber.
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