Big Oil can't get beyond petroleum

By Deborah Gordon and Daniel Sperling
Sunday, June 13, 2010

On Jan. 10, 1901, at the Spindletop oilfield near Beaumont, Tex., a deafening blast rocketed a column of oil hundreds of feet into the air, wrecking a derrick. This gusher pumped out nearly 100,000 barrels a day at first, more than the combined production of every other well on Earth. Spindletop tripled U.S. oil production overnight, and America's dependence on oil was born.

On April 20, 2010, as history will forever record, another oil fountain erupted -- this one a mile beneath the surface of the Gulf of Mexico.

To hear President Obama tell it, the old 20th century economy, fueled by more than 1 trillion barrels of easily accessible and relatively cheap oil, will be bookended by these two gushers. "The next generation will not be held hostage to energy sources from the last century," Obama declared in a speech at Carnegie Mellon University this month. ". . . But the only way the transition to clean energy will ultimately succeed is if the private sector is fully invested in this future -- if capital comes off the sidelines and the ingenuity of our entrepreneurs is unleashed."

Which entrepreneurs would those be? And what capital?

Oil companies, of course, have invested heavily in marketing campaigns designed to show that they are busy thinking up ways to supply tomorrow's cleaner energy. In addition to BP's "Beyond petroleum" slogan, there's Chevron's "Finding newer, cleaner ways to power the world," Shell's "Let's pass energy on to the next generation" and ExxonMobil's "Taking on the world's toughest energy challenges."

But no matter how much these companies say they want to find more environmentally sensitive, renewable sources of energy, their basic strategy is still to make as much money as possible by sticking more holes in the ground in search of more fossil fuel.

Yes, conventional oil supplies are peaking, and Big Oil needs to replace dwindling resources to survive. But faced with a choice between oil -- even oil that is ever dirtier and more dangerous to extract -- and alternative fuels, the industry is still betting on the devil it knows. And so Big Oil is drilling deeper and finding ways to convert unconventional oil -- petroleum extracted by means other than traditional wells, from sources such as oil sands, coal and oil shale -- into gasoline, diesel and jet fuels.

These companies have little reason to do otherwise: The U.S. Geological Survey estimates that there is enough unconventional oil in the world to meet our needs for generations to come. And Big Oil's business model is far from troubled. If oil prices shift from their old range of the past two decades of about $35 per barrel to a new plateau of $70, let alone $100, as some consider likely, extracting oil is going to continue to be exceedingly profitable, even if the cost of extraction continues to rise.

The industry is unfazed by the challenges of extracting unconventional oil. Its expertise, after all, lies in building multibillion-dollar facilities to collect, transport and process fossil fuels. "The history of the industry has always been to . . . extend access to new resources . . . and increase the recoveries from existing production assets," Don Paul, then the chief technology officer at Chevron, remarked several years ago. "Most in the industry do not believe we are anywhere near the end of this process."

Professor Peter Odell of Erasmus University, winner of the 2006 OPEC Award from the International Association for Energy Economics, suggests that the oil industry of 2100 will be larger than that of 2000, but up to 90 percent dependent on unconventional oil. And, its advertising to the contrary, the industry isn't shy about making such estimates itself: ExxonMobil forecasts that fossil fuels will account for the same 80 percent share of world energy used in 2030 as they do today.

We have heard Chevron officials speculate that biofuels might account for up to 10 million barrels of fuel per day in 20 years or so -- but that still represents less than 10 percent of future worldwide oil needs. "Global energy demand is going to increase 40 percent by 2030," Jeffrey Jacobs, vice president of Chevron Technology Ventures, recently told Bloomberg. "It is not feasible for biofuels to replace conventional fuels."

There is, of course, another option available to Big Oil. It involves replacing petroleum with hydrogen fuels and biofuels made from nonfood sources, and producing electricity from wind, solar, biomass and other renewable energy sources. And the industry is investing in these alternatives: ExxonMobil has committed $600 million to algae-based biofuel research and development, and BP has pledged $500 million to biofuel researchers at the University of California at Berkeley, Lawrence Berkeley National Laboratory and the University of Illinois.

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