George Kerevan: BP crisis puts future of energy into sharp focus

Published on Wednesday 2 June 2010 21:26

THE BP crisis is about more than the worst ecological crisis in US history, or about the company's shares taking a hammering – and your pension with it.

Rather, it has brought into stark focus a key question regarding our energy future: deep oil or peak oil? Let me explain.

Some people (myself included) think the world's accessible oil supplies are about to peak. We have not found significant new petroleum fields for decades.

Once you puncture an oil field and let the pressure drop, the flow of petroleum to the surface drops off quite quickly.

As a result we are fast approaching the probable halfway mark in available oil supplies – so-called peak oil. The exact date is open to debate but we'll be there by 2030 at the latest, probably sooner.

The "so what" is that energy demand is still going up like a rocket as the world's population will increase by another 50 per cent before the end of the century.

Peak oil and exploding demand equals high energy prices.

There is another view. This says that we are nowhere near peak oil because the world has vast, untapped petroleum and gas reserves trapped deep in the Earth's crust at depths far below current fields – five miles and beyond. Call this "deep oil".

There is evidence of fossil fuels at great depths. Significant finds have been found off the coast of Brazil, in the Arctic oceans and in the Gulf of Mexico. Six of the world's ten largest discoveries in the last two years have been in deep water.

This is why the BP disaster is so important. If it were a one-off problem, the buck stops with BP and its shareholders.

If we are witnessing a generic crisis caused by the impossible conditions in which oil is found deep down, then peak oil is back on the agenda, and the evidence seems to point in that direction.

The leaky well being drilled by BP starts a mile or so under the sea, then goes down several miles into the Earth's crust. The average depth of the North Sea, by comparison, is only 300ft, twice the height of Edinburgh's Scott Monument.

At these depths pressure and temperature do weird things. The original blowout on the Deepwater Horizon rig seems to have been triggered when the drill head hit a tiny pocket of methane gas. That in itself is not unusual, but as the incredible pressure on the methane relaxed on its journey up the drill column, it expanded from a small bubble into a giant fireball that burst through ordinary safety barriers before exploding on the surface, destroying the rig and killing 11 employees.

BP seems to be ill-prepared to deal with an emergency at such unusual depths. Again, methane was the culprit. BP attempted to cap the leak by lowering a steel cap over the wellhead – a normal practice in shallower seas.

The move failed because leaking methane turns into methane ice on the seabed at these depths. The methane ice proceeded to clog the top of the containment vessel where the leaking oil was to be sucked up.

Optimists will be hoping this is just a learning curve, but I have my doubts. The technology – and investment – needed to make deep oil an effective replacement for traditional supplies create the equivalent of mining on Mars.

By the time the Americans have ringed deep oil exploitation in safety regulations, the business will go the way of the US nuclear industry after the Three Mile Island disaster.

After BP has been taken to the cleaners by the US government and class actions, many oil companies may decide the game is not worth the candle.

Why is US president Barack Obama so anxious to confront BP and probably destroy the deep industry, given America's lack of energy security? For one thing, he remembers that the voters turned against George W Bush when he ignored the brutal impact of Hurricane Katrina on the same Louisiana coast in 2005. But there's something else afoot.

While Europe has been sleeping, the Americans think they have found a different answer to peak oil. It is called shale gas and it is about to transform the global energy debate.

The credit goes to George Mitchell, who, at 91, is among the last of the original Texas independent oilmen – the sort made famous in the 1980s TV soap Dallas.

For years the big oil companies have known there was natural gas locked in shale deposits, but conventional wisdom said it was too expensive to bother with. George Mitchell thought otherwise.

After decades of trial and error, Mitchell has invented a way of tapping shale rocks – which the United States has in abundance – for copious quantities of natural gas.

His method is called "hydraulic fracturing" and consists of pumping millions of gallons of water mixed with sand and chemicals into the shale formations to tear them apart and release gas.

In the last few years the US has suddenly become awash with gas and global gas prices have plummeted. This has caught the major oil companies – including BP – with their proverbial pants down.

Most had flogged off their shale sites in earlier years having bet the business on deep oil. Oops!

What does this mean for you and me? It could kill the hopes of the Russians to make Europe dependent on Siberian gas. And it could spark a scramble for onshore shale gas in Europe, including Scotland.

Will shale gas derail renewable energy? Possibly not. For while shale oil is cheap, there are serious environmental objections to its production.

The chemicals used in the process of extracting shale gas are heavily polluting while the greenhouse gas emissions involved make it as dirty as coal.

However, these considerations may not stop the Americans from using shale gas to free themselves from the chains of Middle Eastern oil, Opec and foreign oil companies.

Which goes a long way to explaining why Barack Obama is giving BP a hard time.