A Cool Response to Oil Shortage Fears

For all the talk that the world is running low on crude oil, there sure have been a lot of significant recent discoveries of the stuff. Just last year, PetroChina (NYSE: PTR  ) announced one of the largest discoveries in China in decades, which fellow Fool Toby Shute quickly dismissed as a puddle compared to Brazilian energy giant Petrobras's (NYSE: PBR  ) own massive discovery.

Given the above finds, the latest development could garner a collective sigh of relief from those preoccupied with a dwindling global crude supply. On Wednesday, the U.S. Geological Survey (USGS) announced a study that estimated there are 90 billion barrels of oil tucked away as undiscovered oil in an area north of the Arctic Circle. If that's not enough for you, it also reckons a mean estimate of 1,670 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids.

For those of us that consider ourselves oil-lingo challenged, the experts out there assure us that's a lot of oil. The USGS estimates that this accounts for 13% of the world's undiscovered oil, and 30% of its undiscovered natural gas.

There will be plenty of work to do, but there isn't expected to be an immediate response to the USGS report and subsequent rush to tap this supply, since cheaper and easier-to-reach sources still exist. Way, way, way cheaper.

Still, certain companies have already developed much of the expertise they'd need for such a venture. Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) , BP (NYSE: BP  ) , and ExxonMobil (NYSE: XOM  ) all might have the skills, thanks to their rugged Russian experiences. For its part, StatoilHydro (NYSE: STO  ) has actually already begun production in the Arctic Circle.

Because of the technical challenges and ginormous costs, significant production in the Arctic won't happen overnight. But at some point, someone will want to tell Santa to move over -- Big Oil is coming through.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. StatoilHydro and Petrobras are Income Investor recommendations. The Fool has an ironclad disclosure policy.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 25, 2008, at 5:48 PM, igimlet wrote:

    well, estimates are estimated, but if you use today's consumption numbers of about 86mb/d, 90 billion b = 1,046 days of world wide consumption, or about 2.88 years of world wide consumption.

    it is true that few folks outside of big oil will have the technical expertise to handle e&p in the arctic, but, the cost of production is gonna be quite high, meaning little relief in terms of price.

    of course, there is already production in place and consumption numbers aren't going to stay static, but i doubt that any peak oil folks are gonna be all that relieved by these estimates.

  • Report this Comment On July 25, 2008, at 6:05 PM, mikane5 wrote:

    The as yet to produce "significant recent discoveries" will, at best, off-set the declining productivity in the "old discoveries" at a much Higher cost! "Cheaper and easier-to-reach sources" are dwindling. Incessant demand and status-que productivity will not balance. "Oil shortage fears" are legitimate and need to be allayed with a greater contribution from alternative sources. Move over Big Oil!

  • Report this Comment On July 27, 2008, at 3:51 AM, dividendgrowth wrote:

    If Ghawar peaks now, we may have real problem until 2012 when the Brazilian, Canadian, and Kazakh productions can finally ramp up.

  • Report this Comment On August 13, 2008, at 1:08 PM, MZHOTROD wrote:

    What I find funny is the city that needs oil the most floats on it. Anyone that grew up in the 1950's in Los Angeles remembers you couldn't go anywhere without seeing a oil well. When gas was 24 cents most of the wells were capped and houses built over them. LA and orange county were known for 2 things oranges and oil. So if they want to add to the world supply, simply tear down the forum in inglewood and start drilling. It doesn't really matter where in the 2 counties you drill, you will find oil. Now all you need to do is convince all the SUV drivers there that all they need to do is drill for oil in their backyard.

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