re: hdr value - oil prices long term This is an article from the...

re: hdr value - oil prices long term This is an article from the Asian Wall Street Journal. It is worth a read and gives a more optimistic assessment.
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The Wall Street Journal - 27 January 2005

Oil, Oil, Everywhere...
By Peter Huber and Mark Mills

The price of oil remains high only because the cost of oil remains so
low. We remain dependent on oil from the Mideast not because the
planet is running out of buried hydrocarbons, but because extracting
oil from the deserts of the Persian Gulf is so easy and cheap that
it's risky to invest capital to extract somewhat more stubborn oil
from far larger deposits in Alberta.

The market price of oil is indeed hovering up around $50-a-barrel on
the spot market. But getting oil to the surface currently costs under
$5 a barrel in Saudi Arabia, with the global average cost certainly
under $15. And with technology already well in hand, the cost of
sucking oil out of the planet we occupy simply will not rise above
roughly $30 per barrel for the next 100 years at least.

The cost of oil comes down to the cost of finding, and then lifting
or extracting. First, you have to decide where to dig. Exploration
costs currently run under $3 per barrel in much of the Mideast, and
below $7 for oil hidden deep under the ocean. But these costs have
been falling, not rising, because imaging technology that lets
geologists peer through miles of water and rock improves faster than
supplies recede. Many lower-grade deposits require no new looking at
all.

To pick just one example among many, finding costs are essentially
zero for the 3.5 trillion barrels of oil that soak the clay in the
Orinoco basin in Venezuela, and the Athabasca tar sands in Alberta,
Canada. Yes, that's trillion -- over a century's worth of global
supply, at the current 30-billion-barrel-a-year rate of consumption.

Then you have to get the oil out of the sand -- or the sand out of
the oil. In the Mideast, current lifting costs run $1 to $2.50 per
barrel at the very most; lifting costs in Iraq probably run closer to
50 cents, though OPEC strains not to publicize any such
embarrassingly low numbers. For the most expensive offshore platforms
in the North Sea, lifting costs (capital investment plus operating
costs) currently run comfortably south of $15 per barrel. Tar sands,
by contrast, are simply strip mined, like western coal, and that's
very cheap -- but then you spend another $10, or maybe $15,
separating the oil from the dirt. To do that, oil or gas extracted
from the site itself is burned to heat water, which is then used to
"crack" the bitumen from the clay; the bitumen is then chemically
split to produce lighter petroleum.

In sum, it costs under $5 per barrel to pump oil out from under the
sand in Iraq, and about $15 to melt it out of the sand in Alberta. So
why don't we just learn to love hockey and shop Canadian?
Conventional Canadian wells already supply us with more oil than
Saudi Arabia, and the Canadian tar is now delivering, too. The $5
billion (U.S.) Athabasca Oil Sands Project that Shell and
ChevronTexaco opened in Alberta last year is now pumping 155,000
barrels per day. And to our south, Venezuela's Orinoco Belt yields
500,000 barrels daily.

But here's the catch: By simply opening up its spigots for a few
years, Saudi Arabia could, in short order, force a complete write-off
of the huge capital investments in Athabasca and Orinoco. Investing
billions in tar-sand refineries is risky not because getting oil out
of Alberta is especially difficult or expensive, but because getting
oil out of Arabia is so easy and cheap. Oil prices gyrate and
occasionally spike -- both up and down -- not because oil is scarce,
but because it's so abundant in places where good government is
scarce. Investing $5 billion dollars over five years to build a new
tar-sand refinery in Alberta is indeed risky when a second cousin of
Osama bin Laden can knock $20 off the price of oil with an idle wave
of his hand on any given day in Riyadh.

The one consolation is that Arabia faces a quandary of its own. Once
the offshore platform has been deployed in the North Sea, once the
humongous crock pot is up and cooking in Alberta, its cost is sunk.
The original investors may never recover their capital, but after it
has been written off, somebody can go ahead and produce oil very
profitably going forward. And capital costs are going to keep
falling, because the cost of a tar-sand refinery depends on
technology, and technology costs always fall. Bacteria, for example,
have already been successfully bioengineered to crack heavy oil
molecules to help clean up oil spills, and to mine low-grade copper;
bugs could likewise end up trampling out the vintage where the
Albertan oil is stored.

In the short term anything remains possible. Demand for oil grows
daily in China and India, where good government is finally taking
root, while much of the earth's most accessible oil lies under land
controlled by feudal theocracies, kleptocrats, and fanatics. Day by
day, just as it should, the market attempts to incorporate these two
antithetical realities into the spot price of crude. But to suppose
that those prices foreshadow the exhaustion of the planet itself is
silly.

The cost of extracting oil from the earth has not gone up over the
past century, it has held remarkably steady. Going forward, over the
longer term, it may rise very gradually, but certainly not fast. The
earth is far bigger than people think, the untapped deposits are
huge, and the technologies for separating oil from planet keep
getting better. U.S. oil policy should be to promote new capital
investment in the United States, Canada, and other oil-producing
countries that are politically stable, and promote stable government
in those that aren't.


- Messrs. Huber and Mills are co-authors of "The Bottomless Well: The
Twilight Of Fuel, The Virtue Of Waste, And Why We Will Never Run Out
Of Energy," just out from Basic Books.