The Peak Oil Crisis: Hyping Jack No. 2

Falls Church News-Press

By Tom Whipple
September 14, 2006

The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska’s Prudhoe Bay and increase domestic US oil reserves by 50 percent.

The news of this great “discovery” naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world’s economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won’t. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska’s Prudhoe Bay and increase domestic US oil reserves by 50 percent.

The news of this great “discovery” naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world’s economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won’t. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for one of these fields may cost on the order of $1.5 billion, or more, as the cost of oil production equipment is inflating rapidly.

Add to this the problem of what to do with very hot oil and the associated natural gas as it comes flowing to the top of a well 7,000 feet under the Gulf and 175 miles from shore. The decision to attempt production from these ultra-deep fields will not be taken lightly by the oil companies involved.

Although there are no geopolitical problems or nationalistic governments involved in producing oil from the Gulf of Mexico, the fields are right in its center — out where the Category 4 and 5 hurricanes really get wound up. On top of this there are questions of how much oil can be extracted from an ultra-deep field with extreme pressures. Although the recent test produced 6,000 barrels a day, for a month, a knowledgeable old geologist opined that he would like to see a test run for a year or more before committing billions to a whole new regime of oil production.

Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible, will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO.

Knowledgeable observers who have commented on the issue agree that even if all goes well, it is unlikely that more than 300-500,000 b/d of production could come into production from all the possible fields in the Lower Tertiary over the next five to seven years. In the meantime, the world will have burned another 150 to 200 billion barrels of oil and US production from existing fields will decline from the current 5 million b/d to somewhere around 4 million b/d.

This suggests that it will take some spectacular and unlikely gains from new production to offset the natural decline currently underway in the US. Of still greater concern is production from Mexico’s giant 2 million b/d Cantarell oilfield, most of which is exported to the US. Creditable reports suggest that Cantarell is entering very rapid depletion and may be producing at a fraction of its current level five years from now. It would be virtually impossible for this level of new production from the Lower Tertiary to come online in the next five years.

So long as the world continues to consume some 31 billion barrels of oil a year, there is still nothing in sight that can forestall imminent peak oil.

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