THE CARBON WAR

We cannot pretend we don’t hear them 103
My collaborator Mark Lewis is among the analysts predicting pain ahead.
His latest report for Kepler Cheuvreux, with the graphic title “Toil for oil means
danger for majors”, concludes that oil prices will have to rise again, after the
current spell of falling prices works its way through to less drilling. When they
do, there will be little comfort for survivors. High capex requirements plus
renewables cost reductions will mean that oil can be unattractive whether the
oil price is high or low.
Others are more apocalyptic. On specialist websites the analysis persists
that shale drilling is a giant Ponzi scheme, akin to the sub-prime housing boom.
Is this really the model that Russia wants to import to replace its ageing
conventional oil and gas fields? I can’t imagine it would be, if its advocates were
following play in America closely.
In the UK, David Cameron continues as a shale advocate with blinkers
fully on. His government has rejected 40,000 objections from voters saying
they have concerns about the potential for fracking below their homes. UK
fracking companies can go ahead, the government says, and in their forthcoming
Infrastructure Bill will say that they the oil and gas companies can use any
substance they like.
If this is the undemocratic lengths that a democratic government is prepared
to go to, I think, how bad will it be in Russia if full-scale shale operations
like those in Texas and North Dakota begin?
And then there is the Arctic. We have plenty of oil and gas there, Russian
advocates of the status quo would say. Rosneft and ExxonMobil have just
announced a discovery of 750 million barrels in their $700 million joint well
in the Kara Sea, have they not? Igor Sechin, Rosneft’s chief executive says that
the company could invest $400bn in the Arctic in the next 15 years. He expects
to open a new oil province there, “with reserves comparable to the developed
reserves of Saudi Arabia,” or so he told Der Spiegel.
Well yes, but there are two problems. The first is geopolitics. Exxon is being
forced to wind down its collaboration with the Russians as western sanctions
bite over Ukraine. That means technical problems for Rosneft. There will also
be financial problems, if western capital continues to be unavailable from
western banks. Sechin has already had to go to Putin, cap in hand, to plead
for $42 billion in the short term as western sanctions have bitten his company.
More importantly, in the long term, there is the economics. The cost of
developing and producing Arctic oil is too high. The oil produced, by the time
it is produced – well over a decade from now – will not be able to compete
with alternatives in energy markets. Any reserves found will be stranded then.