THE CARBON WAR

68
The Winning of The Carbon War
Kashagan was supposed to come on-stream in 2005, after the investment
of some $10 billion by the companies involved. Almost a decade later in 2014, it
is still not producing oil, and is not expected to for another two years, possibly
more. It produced a little oil last October, but the oil was so acidic that it ate
away the pipework, causing toxic gas to leak. The capital expenditure bill on
this one oil project is running at $50 billion now – a $40 billion overspend on
a time overshoot of 11 years and counting – and will clearly need to be much
more if the oilfield is ever to produce oil.
If.
A senior Shell executive who trusts me has told me that within the
company the oilfield is not called Kashagan but Cash-all-gone.
The situation that the companies involved face – Shell, Eni, ExxonMobil
and Total – reminds me of a gambler in a casino who has lost a pile of money,
but whose brain tells him to keep going so that one day he can win it all back.
That is, if his backers – his investors – bankroll him to keep going.
But suppose they tell him to give up and leave the casino before he wastes
any more of their money?
I can see heads shaking around the table. I wonder if they have all heard
this true story before.
Then there is the shale, I add. Here too the oil and gas industry is drilling
at high cost. At least it is producing a product. But not one it can currently sell,
in most cases, at a price anywhere near the cost of production. And this is at
a high oil price: in excess of $100.
It isn’t as though it is only mavericks like me asking questions, I point out.
Bloomberg is all over this story. “Is the U.S. shale boom going bust?” a headline
asked recently. “A host of geological and economic realities increasingly suggest
that the party might not last as long as most Americans think.” The headline
in another investigation focused on the main concern: “Shale drillers feast on
junk debt to stay on treadmill.” One company, Rice Energy, earns only $1 of
income from gas sales for every $4 it spends. It is still able to raise hundreds
of millions of dollars in debt.
“People lose their discipline,” a fund manager explained to Bloomberg.
“They stop doing the math. They stop doing the accounting. They’re just dreaming
the dream, and that’s what’s happening with the shale boom.”
And many Americans, including in high places, think that the boom
will not only last a very long time, but produce so much oil that imports will
become a thing of the past.