Drilling Deeper for Oil

Trend: Peak Oil may be delayed if the deep water drilling realizes the promise of the recent discovery in the Gulf of Mexico.

A BusinessWeek commentary says that the discovery of reserves in the Gulf of Mexico means supply isn't topping out.

Link: Commentary: Plenty Of Oil—Just Drill Deeper

You can tune out all the scare talk about Peak Oil for a while -- probably a long while. Peak Oil is the theory, on the verge of becoming conventional wisdom, that the world's petroleum supply is topping out and will not be able to meet global demand soaring along with the economies of China and India. But a successful test in a mammoth field deep beneath the Gulf of Mexico, announced on Sept. 5 by Chevron (CVX ), Devon Energy (DVN ), and Norway's Statoil (STO ), should help put that scary scenario on hold for decades.

One huge oil reserve, even if it could rival the 1968 discovery of Prudhoe Bay and increase U.S. reserves by up to 50%, will not turn around the world's tight energy markets, of course. It won't even bring the U.S. close to energy independence when oil and gas get into full-fledged production four or five years from now.

But the capability to find and recover petroleum at extreme depths, temperatures, and pressures, as demonstrated by the Chevron team, may indeed tip the balance of supply and demand in the long term. There will be a new frenzy of drilling at these depths in the Gulf of Mexico, where about a dozen promising exploration wells have already been drilled.

Matthew R. Simmons, chairman of an energy investment bank bearing his name and one of the leading proponents of Peak Oil, is sticking to his guns. "One well tells you almost nothing," he says. Simmons says the deep wells are "unbelievably expensive" and often fall short of expectations. "The history of the industry is full of disappointment."

But given the powerful combination of high oil prices and new technology, the industry is gaining confidence that supplies will grow. It's pushing hard to produce oil and gas from difficult tar sand and shale fields as well as rejuvenating older fields with enhanced recovery methods. Cambridge Energy Research Associates predicts world oil and natural gas liquids capacity could increase as much as 25% by 2015. Says Robert W. Esser, a director of CERA: "Peak Oil theory is garbage as far as we're concerned."