MSN Money - Financial Times Business News: Lack of staff and equipment hit oil output

Efforts to boost global oil and gas production are being held back by shortages of equipment and staff and by soaring costs.
The energy services sector, which provides everything from drills to submersible pumps, lacks the resources to meet the needs of oil and gas groups, forcing up price inflation in some parts of the sector to 100 per cent.
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Industry executives say the squeeze has become so acute that energy companies are being forced to scale back their production plans or put exploration projects on hold.
"It's going to be a challenge to get production up,'' said James Day, chief executive of Noble, a leading oil services company. "It's a challenge for us to respond to the demands of the marketplace.''
Those demands have increased with the rise in oil and gas prices in the past few years, which have given energy companies the cash to expand production to respond to growing global demand.
The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.But energy services companies are unprepared for the boom, having never fully recovered from the massive disinvestments in the 1990s. Now, as demand for their services outstrips supply, they are ramping up prices and setting longer equipment contracts.
BP recently set a price record by agreeing to pay Transocean $520,000 a day for a rig. And Global Santa Fe was able to command a seven-year contract – expected to commence in 2009 – for a deep-water rig, up from the average of three years.
Meanwhile, EnCana, the Canadian energy group, is to scale back exploration and production plans, cutting $300m or 5 per cent from this year's budget.
In Norway only 14 wells were drilled last year, well below the planned number of between 30 and 40, with high prices and lack of equipment and staff to blame, according to Alan Murray, a senior petroleum economist at Wood Mackenzie, the consultancy.
Even Saudi Aramco, the world's largest oil producer, which plans to spend more than $30bn in new investment in coming years, has been "having difficulties in getting the equipment they need", said Robin West, chairman of PFC Energy, the consultancy.
Nobody expects equipment and staff shortfalls to be made up soon. Service companies building new equipment and renewing efforts to recruit staff will take time to catch up with demand. In the offshore installation sector, there have already been reports of equipment sitting idle without staff to run it.
Halliburton and Baker Hughes, oil service heavyweights, said they had been bombarded by so many requests for their services that they were being forced to turn some down.
"I've been in the business over 30 years,'' said Jim Renfroe, senior vice-president of production optimisation for Halliburton. "It's as busy as I've seen it in my career."
Copyright 2006 Financial Times

Comment is free: Can we afford to go nuclear?


Can we afford to go nuclear?
Expect history to repeat itself if the government gives the go ahead to a new generation of nuclear power stations.
Tony Juniper
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March 30, 2006 04:14 PM
The official body charged with the clean up of Britain's nuclear sites today revealed (pdf) that the estimated costs for dealing with the country's radioactive legacy has soared again. The Nuclear Decomissioning Authority (NDA) now says that there could be an additional £14bn of necessary expenditure, taking the total to near £70bn.
That is not millions, that is 70 billions, 70 thousand million pounds. And that is just for the clean up and decommissioning costs, never mind all the money that was (and is still being) ploughed into nuclear research and development. And then there was the cost of building the reactors in the first place. Whichever way you look at it, this has got to be a crazy way of generating power. It's especially crazy if you are a taxpayer, as most of that £70bn will be paid by you.
As ever, with the nuclear costs saga, this is not the end. In 2008 the NDA plans to publish a further and fuller assessment of clean up costs: "work in progress" the NDA calls it. The track record of this industry does not suggest that it will be a lower figure than the one we saw today. It seems that every time there is a review of the costs of this aspect of nuclear power, the estimated figure goes up, and up - and up. In 2008, I have no doubt that we will see an increase again. Who knows what it will be by then - £80bn, £90bn, £100bn?
Nuclear power proponents are aware of the damage that announcements like this do to their cause. That is why the spin is now crafted to suggest that new nuclear technologies can avoid the cost overruns, and since the new designs produce less waste, cut costs of radioactive materials management in the future. Who says? Well the nuclear industry of course. Having not opened a reactor in Europe for decades, we are now being led to believe that somehow all of the huge expense of the past has been dealt with. When it comes to waste, yes, there might be less volume overall, if the new designs work as they should do - but the high level waste that gives us the most headaches for the long-term, well that will increase threefold. To this extent, the new reactors that are being talked up today will extend the costs of waste management well into the future, leaving future generations to pick up the tab. Rather as our society is today paying huge costs following nuclear policy decisions made in the 1950s.
The other context for all of this, of course, is the impression that some are seeking to create that nuclear is the only answer we have for dealing with the far greater threat of climate change. This is not true either. The technologies needed to cut emissions, secure power supplies and provide jobs and export opportunities all exist now. We don't need to wait for a technological breakthrough - we just need to get on with creating the markets for what we've already got. Friends of the Earth recently published energy scenarios that can deliver up to 70% carbon dioxide emissions reductions from the electricity sector and without recourse to new nuclear power. We have the cutting edge technological base to do this, we have the entrepreneurs and companies and we have outstanding opportunities because of our islands are so rich in renewable energy sources. The investment resources needed to get this moving, however, have until now been largely sucked up by the outdated nuclear industry.
The government is now conducting an energy review that could well conclude that new nuclear power stations will be built in the UK. If this is outcome, then expect history to repeat itself. Expect massive costs, expect other technologies to sit in the wings, expect a massive opportunity for the UK to lead the world in sustainable energy to go abroad, taking its 21st century business leaders and companies with it.

Comment is free: Can we afford to go nuclear?


Can we afford to go nuclear?
Expect history to repeat itself if the government gives the go ahead to a new generation of nuclear power stations.
Tony Juniper
Articles
Latest
Show all
Profile
All Tony Juniper articles About Webfeeds
March 30, 2006 04:14 PM
The official body charged with the clean up of Britain's nuclear sites today revealed (pdf) that the estimated costs for dealing with the country's radioactive legacy has soared again. The Nuclear Decomissioning Authority (NDA) now says that there could be an additional £14bn of necessary expenditure, taking the total to near £70bn.
That is not millions, that is 70 billions, 70 thousand million pounds. And that is just for the clean up and decommissioning costs, never mind all the money that was (and is still being) ploughed into nuclear research and development. And then there was the cost of building the reactors in the first place. Whichever way you look at it, this has got to be a crazy way of generating power. It's especially crazy if you are a taxpayer, as most of that £70bn will be paid by you.
As ever, with the nuclear costs saga, this is not the end. In 2008 the NDA plans to publish a further and fuller assessment of clean up costs: "work in progress" the NDA calls it. The track record of this industry does not suggest that it will be a lower figure than the one we saw today. It seems that every time there is a review of the costs of this aspect of nuclear power, the estimated figure goes up, and up - and up. In 2008, I have no doubt that we will see an increase again. Who knows what it will be by then - £80bn, £90bn, £100bn?
Nuclear power proponents are aware of the damage that announcements like this do to their cause. That is why the spin is now crafted to suggest that new nuclear technologies can avoid the cost overruns, and since the new designs produce less waste, cut costs of radioactive materials management in the future. Who says? Well the nuclear industry of course. Having not opened a reactor in Europe for decades, we are now being led to believe that somehow all of the huge expense of the past has been dealt with. When it comes to waste, yes, there might be less volume overall, if the new designs work as they should do - but the high level waste that gives us the most headaches for the long-term, well that will increase threefold. To this extent, the new reactors that are being talked up today will extend the costs of waste management well into the future, leaving future generations to pick up the tab. Rather as our society is today paying huge costs following nuclear policy decisions made in the 1950s.
The other context for all of this, of course, is the impression that some are seeking to create that nuclear is the only answer we have for dealing with the far greater threat of climate change. This is not true either. The technologies needed to cut emissions, secure power supplies and provide jobs and export opportunities all exist now. We don't need to wait for a technological breakthrough - we just need to get on with creating the markets for what we've already got. Friends of the Earth recently published energy scenarios that can deliver up to 70% carbon dioxide emissions reductions from the electricity sector and without recourse to new nuclear power. We have the cutting edge technological base to do this, we have the entrepreneurs and companies and we have outstanding opportunities because of our islands are so rich in renewable energy sources. The investment resources needed to get this moving, however, have until now been largely sucked up by the outdated nuclear industry.
The government is now conducting an energy review that could well conclude that new nuclear power stations will be built in the UK. If this is outcome, then expect history to repeat itself. Expect massive costs, expect other technologies to sit in the wings, expect a massive opportunity for the UK to lead the world in sustainable energy to go abroad, taking its 21st century business leaders and companies with it.

RIGZONE - Canadian Tar Sands: The Good, The Bad, And The Ugly

Peak Oil: A Shattered Myth?
Some are saying that peak oil is a myth since there is plenty of low grade oil to still be recovered around the world. The question is whether it's worth the price being paid to mine the stuff, and whether the problems spawned by its extraction will be worth it in the long run.
The Wall Street Journal suggests that peak oil is not truly happening. "The surging interest in Canadian oil sands is stark evidence that the world isn't about to run out of

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Alberta's Tar Sands(Click to Enlarge)oil. Instead, it is running low on readily accessible light, sweet crude -- oil that flows like water, has few impurities and can be easily turned into gasoline. As the good stuff gets scarce, Big Oil is turning its attention and pouring money into extra-heavy crude, such as the giant deposits near Fort McMurray and another similar one in Venezuela."
We were proponents of the same concept since we wrote "Successful Energy Sector Investing," in 2001. But five years later, a great deal has happened that has led us to a new perspective, that of joining the camp that believes that oil is perhaps at the start of its final stage as the primary fuel on planet Earth.
And while it could still be decades before we know who's right and who's wrong, the real story is being written now, in the forests of Canada and in the Orinoco Basin in Venezuela, two ecologically sensitive areas of the world.
The New Top Ten
According to the Journal, there is an oil sand deposit the size of Florida under an "ancient" forest in Northern Canada. And France's Total is likely to begin extraction of the tar sand "sludge" by May 2006.
The net effect is that "Heavy-duty oil-extraction projects like these are turning Fort McMurray into the first great oil boom town of the 21st century."
In fact, due to high oil prices, major oil companies have finally been moved to spend money going after low grade oil reserves, and are expected to spend some "$70 billion" to do so.
There is so much low grade oil around, that countries with large reserves, such as Canada and Venezuela, have been vaulted to the top of the reserve list, if the sludgy stuff is included in the estimates.
For example, according to the Journal, if you include the tar sands and other low grade oil deposits: "has vaulted Venezuela and Canada to first and third in global reserves rankings, although Venezuela's holdings in extra-heavy crude are a rough guess. Saudi Arabia is No. 2. Not including the oil sands, Canada would fall to No. 22."
In other words, the oil reserve map has been redrawn, and a whole new ball game is unfolding.
The Dark Side
If this seems to good to be true, as you prepare to pay $3 per gallon to drive your car this summer, as could well happen if current price trends remain intact, there is an even darker side to the use of low grade oil.
According to the Journal: "heavy oil has big economic and environmental drawbacks. It costs more to produce and takes more energy to turn into gasoline than traditional light oil. Recovering and processing Fort McMurray's heavy crude releases up to three times as much greenhouse gas as producing conventional crude. And upgrading it into refined products, such as gasoline or diesel, will require a gigantic investment to retool global refineries."
The extraction process is so labor intensive and requires so much heat, in order to extract the oil from the tar sand that "Total briefly floated the idea of building a nuclear-power plant" in Fort Mc Murray.
In other words, just because new oil is likely to be more plentiful, processing costs will likely keep prices higher than in the past, and the toll on the environment won't be fully known for years to decades.
Indeed, some effects are already visible as "Canada, which exports more oil to the U.S. than any other country, already is having trouble meeting its pledge to cut CO2 emissions largely because of its mushrooming heavy-oil production. By 2015, Canada's Fort McMurray region, population 61,000, is expected to emit more greenhouse gases than Denmark, a country of 5.4 million people."
Even more alarming is this: "In northern Alberta, the oil-sands boom is remaking the landscape. The mining operations have clear-cut thousands of acres of trees and dug 200-foot-deep pits. The region is dotted with large man-made lakes filled with leftover waste from the mining operations. To chase off migratory birds, propane cannons go off at random intervals and scarecrows stand guard on floating barrels."
Conclusion
There is something new in the air, at least for the mainstream media. Aside from what is likely to be the new buzzword in the oil market, tar sands, it's also heat, and pollution.
The exploration and extraction for oil in Canada, and likely elsewhere, will have significant repercussions, which may not be known or at least acknowledged for several years or decades.
At some point an environmental disaster will unfortunately, but likely occur, which will raise red flags and bring political drama to the situation.
Already the battle lines have been drawn. [Alberta's energy minister, Greg Melchin, says oil-sands development creates a minimal environmental disturbance that is outweighed by the opportunities and jobs created. "It's worth it. There is a cost to it, but the benefits are substantially greater," he said.]
Meanwhile [Environmental groups are increasingly critical of the government's reluctance to regulate the oil sands. "The pace of development is outstripping our ability to manage the environmental issue," says Mr. Raynolds of the Pembina Institute. "Our unwritten energy policy is dig it up and sell it as fast as possible."]
But far beyond the near term, it is unlikely that the tar sand phenomenon will permanently fix what has become increasingly obvious to anyone who cares to have their eyes open about the world's energy situation.
The price of oil is unlikely to fall significantly anytime soon, due to higher extraction and security costs, limited refinery capacity, and the writing on the wall, the easy oil has been found and the hard to find stuff is now on its way to being used up.