Wednesday, April 25, 2007

Henry Groppe: Got oil?

National Post: Sands are shifting for oil supply.


The world continues to run rapidly out of oil and natural gas, which points to dramatically higher prices in a handful of years.

That was the message from Henry Groppe, a lanky Texan who advises oil companies and investors around the world about the world of prices. His firm, Groppe, Long & Littell, is based in Houston and was founded after he did stints as a chemical engineer for Saudi Arabia's Aramco, Dow Chemical, Monsanto and Texaco.

"The fundamentals always prevail, which is that the minute you start producing, you are depleting your resource," he told an audience of investors last week at a conference sponsored by Calgary's Pengrowth Energy Trust.

He showed production curves in the North Sea and Mexico that are catastrophically sudden in terms of their declines.
"This has a huge impact on the economies of Britain and Mexico," he said. "Britain became an oil importer this year for the first time in decades."

Oil production worldwide peaked months ago, but figures and prices don't reflect that yet because the production of liquids stripped from natural gas has been filling the gap, he said.

But that potential is peaking, too, which means that "in several years" the world will enter a new era of higher prices.
"The only question is how high will prices have to go before there is a decline in usage?" he said. Price hikes will mean the freeing up of less viable supplies, but there are limits economically and geologically to this, too, given current technology.

"Do we ever run out? Well, 40 years ago we ran out of US$2 a barrel oil; then 25 years ago we ran out of US$10 to US$12 a barrel oil and recently we ran out of US$40 to US$45 a barrel oil," he joked.

Current prices in the US$60- range make oilsands and Venezuela's tar sands viable, and prices will continue rising, he forecasted.

"The issue for the United States is that it uses one-quarter of the world's energy [oil, gas, coal] but has only 5% of the world's population," he said. "As realities intrude and consumption goes from 80 million barrels a day to 120 million [in 10 years], you will see a major shift in all financial and energy markets."