Good oil and gas deposits are increasingly on the fringes geographically, geologically and technologically; and that translates into lower energy returned for energy invested. That's not a good trend, folks.
Good news, America. There's maybe as much as 15 billion barrels of crude oil out there in the Gulf of Mexico some 270 miles southwest of New Orleans and 175 miles offshore. Chevron just announced that their Jack No. 2 well has been steadily pushing 6,000 barrels a day since 2004, suggesting that there is a huge new field more than 5 miles below the hurricane-prone waters of the Gulf.
The test well broke a half dozen different drilling records, including the deepest offshore production well yet. Chevron is spending more than $3 billion dollars to develop the field, which is expected to begin production in 2008.
What I found interesting about the announcement is the fact that oil companies are literally having to go to such depths to find oil. All the easy, cheap oil -- as Daimler Chrysler's Thomas W. LaSorda told the New York Times -- has been found. From here on out, folks that "bubbling crude" is going to be harder to find and a lot more expensive to bring up.
I did a quick Google search for the "deepest oil well" prior to Jack No. 2 and learned that the industry has steadily had to drill deeper to reach oil. In 1980, the average depth of a new oil well was 3,810 feet. By 2004, this had increased to more than a mile, 5,706 feet. As you might expect, drilling deeper costs more. In 2000, it cost $4.94 to extract a barrel of oil. This climbed to $8.61 a barrel. The industry spent $63.1 billion on oil discovery in 2000, but had to spend nearly twice that in 2004, a whooping sum of $117.4 billion.
And more money doesn't necessarily translate into more wells or more oil. In 1980, 31,182 oil wells were drilled globally. In 2004, that had plummeted to just over 7,000 wells. Last year, 26,295 gas wells were drilled compared to 8,193 oil wells, which suggests not a deliberate shift of business focus, but a reality of geology.
As Dr. Kenneth Deffeyes explains in "Hubbert's Peak", oil is usually found in rocks that have been in an "oil window" of between 7,500 and 15,000 feet. Oil bearing rocks that have been deeper than 15,000 in their geologic history will usually -- but not always as Jack No. 2 illustrates -- have had their hydrocarbons cooked into natural gas.
More natural gas discoveries than oil -- which is more valuable because it is more easily transportable -- suggests to me that we're now utilizing the last of the earth's hydrocarbon bounty, certainly the last of the easy-to-reach oil. There may yet be large deposits under the Arctic and certainly deep into the Gulf of Mexico, but at what cost?
And how much oil is 15 billion barrels? America uses 20.5 million barrels a day. Usually only about 50% of the oil in a given field can be extracted. In the new Gulf field Chevron has just discovered that translates into just one year's supply.