Jonathan Fahey's Associated Press headline was nothing if not memorable: "Oil Council: Shale won't last, Arctic drilling needed now." The article goes on to describe a new report from the National Petroleum Council prepared by an internal committee for Arctic research. The chairman of the committee was Rex Tillerson, CEO of Exxon Mobil.
Just in case you're thinking, "But wait, the oil industry said shale would last for decades and decades before peaking," it's worth taking a step back to highlight the parties at work here:
For our purposes, we can split the oil industry into majors and independents. The majors are who we usually think of when we think of oil companies: Exxon Mobil, Shell, Chevron, etc. The independents are much smaller (but more nimble) operators. And it was the independents who took on the great risk and uncertainty in the early days of US shale and fracking. To excuse the pun, like trying to quickly turn a giant oil tanker, once shale was proved a success the majors just couldn't react fast enough. By the time they got around to thinking about shale in any serious way, the independents had already planted their flags in the best areas and completely boxed the majors out of the enterprise.
Denied the shale riches, the majors are forced to turn to the next big prize, an area much more suited to the way the majors operate: the Arctic.
Tillerson argues in Fahey's original piece: "There will come a time when all the resources that are supplying the world's economies today are going to go in decline."
Most peakists would agree with Tillerson's take on the limits of shale oil, the shale proponents themselves would likely strongly disagree, but in the National Petroleum Council, there are no seats at the table for the shale independents. Their voices of hype and shale abundance are whispers in the wind to the authors of NPC's Arctic report.
In Tillerson's view, inevitable depletion is the reason to implement Arctic production now, because the harsh conditions and work required will require a long lead time before significant production may be realized.
It's worth taking a moment to enjoy the irony here since a decade ago, around the time of Peter Maass' article "The Breaking Point", Exxon Mobil apparently thought that people were talking about Peak Oil so uncomfortably often that they took the amazing step of producing a full page ad deriding the concept. The now infamous ad hits all the common Peak Oil denier hits. There's the always popular tactic of calling Peak Oil a "theory". Next, the oil resource is so large that a peak in production will not occur for decades, the ad claims. Then there's the "reserves vs. rates" switch - that's where someone starts talking about reserves in big confusing numbers, in hopes of fooling the audience into forgetting that what we're actually talking about is rates of production - a completely different metric. How much oil you have does not matter. The rate at which you can extract oil over the long-term is what matters, and that's what you're actually discussing when discussing Peak Oil.
There's even the comical graphic of a confused onlooker using binoculars to try to find the peak of a mountain, but he can't see it, apparently because it's so far in the distance and obscured by clouds. You can almost imagine the Exxon Mobil marketing guys trying to tell the public: "Well, we can't see the peak, but we assume it's wayyy over there somewhere. So none of you should worry about it at all right now."
About two seconds of thinking about it would suggest that if we can't see the peak, and can't accurately predict what the other side of the peak will look like, then that's a reason to talk MORE about Peak Oil, send a climber up the mountain and tirelessly work on securing the data we need to remove those clouds and provide a better picture of our oil future. Are we always going to accurately predict the future, no, no we are not. But that does not excuse us from going through the important work of thinking about the future.
But we've given Exxon Mobil a hard enough time over that ad for years. So at last it's nice to see that they have finally seen the light. And it's nice for Tillerson to admit to Fahey in a second interview: "We are in the depletion business."
So why are the majors so focused on the Arctic?
The short answer: That's what's left.
Recall that when we talk about all the hype in the shale boom, what we're really talking about is a boom in unconventional oil production. Not nearly as much press is given to the state of conventional oil production - the world where the oil majors live. And the situation in conventional oil is bleak.
In the US and in much of the world, conventional oil production continues its decline (it's only the recent emergence of unconventional oil that has prevented the world from reaching it's all time oil production peak). The situation isn't helped by something the peakists have said for years... it's just getting harder and harder to find oil these days.
I constantly advise readers to view the Feb 2014 talk from Steven Kopits, specifically to learn about the issue of capex and how oil majors are throwing more and more money at exploration, yet getting less and less oil for their efforts.
And if you think the depletion situation is hitting oil majors hard just imagine, this was BEFORE the price of oil dropped so dramatically last year.
That's why all the oil major members of the National Petroleum Council are pushing so hard for the Arctic. That's why Exxon Mobil wants to go. That's why Shell is so desperate to return, even after their "mishap-plagued 2012 exploration campaign ended with the grounding of the company’s Kulluk drilling rig and a $200 million loss for scrapping it." After having to rescue 18 of the Kulluk's crew, the Coast Guard's account of the entire Kulluk incident is well worth reading. After breaking free and floating on its own adventure for a few days, the Kulluk eventually came to rest near an Alaskan island. Amazingly, not a single drop of the 150,000 gallons of diesel fuel it carried were spilled, averting an environmental disaster.
Despite this, the oil majors want to return to the Arctic. Because they not only need a win, they need one badly. They're still companies. They still have shareholders to please.
Finally, regardless of what one thinks about the environmental risk of Arctic drilling, it's interesting to examine the argument for WHY this has to be done. According to Tillerson:
"There are two important elements for people to understand. One is the timelines that are required. Anytime you are dealing in these frontier areas where you are really driven by technology, these are very long time frames, multi-decade time frames.
The second element is just the enormity of the energy demand in the world. It's between 85 and 90 million barrels of oil per day today. That takes huge resources to supply that in a reliable way.
We are in the depletion business. There will come a time when all the resources that are supplying the world's economies today are going to go in decline. This will be what's needed next. If we start today it'll take 20, 30, 40 years for those to come on."
When asked about the Arctic itself versus other areas, Tillerson admits the obvious, oil production is an expensive enterprise:
"The size of the resource prize has to be large to support the risked capital that has to be put in place. The Arctic is one of the few places left where we believe those opportunities exist."
When Fahey presses on the environmental issue, Tillerson continues on why we have to do this:
"Because eventually we are going to need it. It's back to that insatiable appetite that the world has for energy. Oil demand is going to continue to grow as population grows. If you look out 25 years from now we are going to have another couple of billion people on the planet, we're going to be at 9 billion people. Something like 3 billion people are going to move from poverty into middle class status. When they do that, the energy demand goes up enormously.
As we move out into the middle of this century our outlook shows you are going to need those resources even with a lot of other alternative forms of energy continuing at a fairly aggressive growth rate."
Think about that for a second. Sure there's an environmental risk, but we have to do it anyway, Tillerson argues. Because eventually we are going to need it.
There's so much status quo built into that line.
The irony is that Tillerson is making (in a different direction) almost the exact same argument that Robert Hirsch and his team made ten years ago in 2005's Hirsch Report for the US Department of Energy. In short, Hirsch argues that Peak Oil is real, it's coming, and to deal with it effectively you need to start a crash mitigation program to wean the economy off of oil and you need to do it 10-20 years BEFORE the peak in production. These measures are taken so that when the punch of Peak Oil comes, it results in a harmless glancing blow instead of a knock-out strike.
Tillerson is arguing, without opposition, that it is inevitable that oil demand will always increase and that we, in turn, must always do whatever is necessary to procure the oil to feed that demand. Regardless of costs to the economy or environment. If we want to maintain our way of life, Tillerson suggests, Arctic drilling is the only path available to us.
To be clear, I don't necessary oppose Arctic drilling. But I do reject the mission creep that suggests that we have no choice but to continuously take the next step down a path without carefully considering if that is the path we want to be on. What's the next step after Arctic drilling? And the step after that? Each time with someone like Tillerson telling us that we have to do it and that we don't have a choice. All while a passive silent majority bargains that "if we just go this one last step, renewables will be waiting for us on the other side." The same bargain they made when we started drilling offshore. The same bargain they made when fracking and shale production began. The same bargain they'll make again with Arctic drilling.
Energy revolutions don't always come exactly when we need them too, nor do they come if we just sit back and passively wait for the "market" to take care of the dirty work for us.
What if we simply said "No" to Arctic oil production? What if we simply said "No" to maintaining our current way of life, and choose to create a new, better way of life instead? What would it mean if what they call this "above ground" decision pushed Peak Oil closer to us? How would we adjust? How would we sustain and/or radically transform our energy economy so that we're OK in the future despite the lack of Arctic oil?"
Perhaps these are questions we should consider asking seriously.
We still have the ability to collectively choose our energy future.