Oil multis make huge profits but worry about future reserves

By Michael Donhauser Feb 8, 2012, 2:06 GMT

London - Oil fever has broken out once more in the global race for access to energy. The oil multinationals may be making huge profits on the back of high crude prices, but there is growing concern at their headquarters regarding where the oil of the future will be sourced.

It is becoming increasingly difficult to get at the sources that are easily accessible from an economic viewpoint, and more importantly that are safe - for political as well as technical reasons.

Global oil demand is on the rise. Rostam Ghasemi, the Iranian president of OPEC for 2011, has predicted a rise in demand for this year of 1.1 million barrels per day, and the 12 major oil producers that make up OPEC forecast strongly rising demand for energy up to 2035.

Announcing profits of 23.9 billion dollars for 2011 on Tuesday, BP chief executive Bob Dudley also predicted strongly rising demand. A few days earlier, Royal Dutch Shell put shareholders' income at 30.9 billion dollars, while ExxonMobil came in at 41.1 billion dollars in announcing its results at the end of January.

The figures may be cause for satisfaction, but none of the chief executives saw this as reason to relax. Today, more than 90 per cent of all crude is pumped by the huge state-owned concerns in Russia, Saudi Arabia, Venezuela and Iran - not by the oil multis.

The Arab Spring and the crisis over Iran have made clear that predicting who will gain access to the world's major fields and at what cost is increasingly difficult. Libyan imponderables, political uncertainty in Egypt, the unpredictability in Iran have all made planning for the future difficult.

According to OPEC's annual report, the largest reserves are now held by Venezuela, led by the left-wing Hugo Chavez, who is seen by the West as unpredictable. Venezuela's reserves are reported to be 297 billion barrels, more than Saudi Arabia, which may have overestimated its reserves by 40 per cent, according to Wikileaks.

Exxon is currently engaged in a legal battle in Venezuela over compensation for the nationalization of oil fields. The state-owned PDVSA is offering 255 million dollars, while Exxon is demanding 7 billion.

'Extreme volatility,' is how Peter Voser, Royal Dutch Shell chief executive describes the global oil market. Voser plans 60 new projects over the years ahead to release 20 billion barrels of oil-equivalent, with 80 per cent of investment going to 'upstream' projects to pump oil and natural gas at source.

BP's Dudley announced 12 new test drilling probes for 2012 alone, twice the number in 2011, and six new major extraction projects are to be launched this year.

Necessity is driving the oil multinationals which are hard at work developing new methods of extraction to pump oil not only from traditional oilfields, but also to exploit unconventional sources for their 'black gold'.

Canada has huge reserves of oil sand that yield their oil only by using large quantities of energy and water. China's state-owned Petrochina has invested 5.4 billion dollars in the project in an indication of the promise it holds.

Alongside oil sand, oil shale is of increasing interest to the sector. Extraction involves speeding up the natural process by which oil is formed. Royal Dutch Shell has mastered much of the technology, but Voser acknowledges that politicians and the wider public have yet to be convinced of the benefits, given the environmental costs.

Greenpeace and other environmental organizations have long attacked Canada's oil sand exploitation as 'one of the dirtiest forms of oil extraction', with emission of greenhouse gases much higher than from more conventional reserves.

The European Union plans to introduce a climate levy on oil from Canada's sand deposits, while the British government has, according to London's Guardian newspaper, backed the Canadians in opposing it.