By the Peak Oil Review team
Art Berman is a geological consultant whose specialties are subsurface petroleum geology, seismic interpretation, and database design and management. He is currently consulting with a wide range of industry clients such as PetroChina, Total, and Schlumberger. Mr. Berman has an MS in geology from the Colorado School of Mines and is active with the American Assoc. of Petroleum Geologists. He spoke with us about 10 days ago, after a presentation in Canada at the CIBC Technical Conference. (Part 1 appeared last week, in the July 19th issue of the POR.)
POR: How have analysts and investors responded to your studies and your viewpoints?
Berman: My biggest clients, for this kind of talk and work, are investment bankers and investment advisory companies. I gave two talks in Calgary over the last week-one to CIBC and the other to Middlefield Capital. I’ve given multiple talks to energy investment companies. They’re the people who are really paying attention to this. The answer is that a significant portion of the investment banking sector takes what I’m saying quite seriously, but what they do with that I can’t tell you.
POR: How has the gas-producing industry responded to your studies and views?
Berman: The U.S. companies have pretty much chosen to ignore me. Or they’ve made public statements that I’m a kook or I don’t understand or I’m hopelessly wrong. Some them-especially the Canadian companies for some reason-want me to advise them even though my message is not a message that they prefer.
It’s a fascinating process. My sense of it is that the level of interest, and whatever notoriety I have, has only increased. I credit the ASPO 2009 peak oil conference in Denver with really kicking that off. That presentation was a tipping point in awareness about the truth of shale gas reserves and economics. After my presentation, I had almost five hours of discussions with analysts that had attended the talk. Associated Press reporter Judith Kohler published an article -Analyst: Gas shale may be next bubble to burst‖ that was distributed to hundreds of outlets in the national press and that brought this topic into the mainstream. U.S. E&P executives responded with a series of ad hominem opinion editorials and earnings meeting statements that minimized the fact-based positions that were presented at the ASPO 2009 meeting.
Before that, I spent months making presentations to professional societies of geologists, geophysicists and engineers throughout the Gulf Coast. These are colleagues who do the work of the petroleum industry that gave me what amounted to a peer review. I know that there were silent people in those audiences who disagreed with me, but the overall response was supportive and enthusiastic. I also got hundreds of e-mails responding to my World Oil articles that included testimonials about companies’ experience with shale gas wells in the real world.
E&P executives don’t have any such base, nor do they know about this experience. In all of my presentations, I acknowledge people that include some of the most respected E&P CEOs, opinion leaders, and experts on oil and gas price formation, reservoir engineering, economic evaluation and risk analysis. In addition, there are also many industry analysts in research companies, financial advisory and fund management firms, and reporters in the energy press that consult and publish opinions about my position on shale gas.
The point is that I am not alone. I have a large community of supporters with impeccable credentials. I am a cautious and somewhat conservative person in my professional work because I advise clients on high-risk and very large bets on wells and investments. My reputation and future income depends on the credibility of my evaluations and the quality of my research. I do not believe that the same can be said for the CEOs of the U.S. public companies that dispute my findings.
I’m a fairly busy guy, and a lot of people want to hear the story; I talk to Bloomberg and Platts and others all the time. If anything, I feel as if I’m sort of slipping into the mainstream, in a weird way. It’s a scary thought. I’m now asked to participate in august panel discussions, albeit representing the radical fringe; but a year ago nobody even wanted to talk to me.
I don’t know where it’s going. It seems inevitable to me that it is sort of a bubble phenomenon; but bubbles can go on for 25 years or so, even though everyone knows that’s what’s happening. As long a capital markets continue to fund these things it’s going to keep on going. I’m not saying that’s even a bad thing, though I wouldn’t put any money in it, that’s for darned sure.
POR: Back in the 1960’s the phrase “too cheap to meter” was introduced, by some promoters, as being the future of nuclear energy. Over time, the reality obviously didn’t match the hype. It feels to us that there could be a parallel with the recent 100-year-supply statement…
Art Berman: It could be a big denial issue….
POR: Like that early era for atomic power, the shale gas story still seems so new that there are a lot of uncertainties about the shale gas bucking bronco, if you will. How will the industry respond to the uncertainties? How are they responding to the current tough price signals?
Berman: Not at all right now. I had a whole series of talks that I gave last spring called, “North American Natural Gas: Acknowledging the Uncertainty.” That’s all I want people to do. Not that they shouldn’t drill for it or that I’m right; all I’m saying is acknowledge the uncertainty.
POR: How do you think the Macondo well fiasco will impact US gas and oil production? We’re particularly thinking in the mid- to long-term scenarios.
Berman: Just what’s happened already has had a pretty negative effect on the US economy. The moratorium has caused some rigs to move to other countries. So it seems to me that the inevitable outcome, at some point, is that we’ll have even more dependence on imported crude oil. I just don’t see any other way around it. The intangible piece of that really is how it will affect the planning of companies that want to continue exploring in the Gulf of Mexico. Do they immediately de-emphasize all of that because we just don’t know what the government is going to do to them? And I think the answer to that, despite what they say, is “yah, sure.”
The deepwater Gulf of Mexico is really it. That’s the only substantial source of new reserves of crude oil that the United States has. For now, the whole area has a big question mark on it.
POR: How about the impact on offshore oil and gas production elsewhere in the world? There is already talk of modifying standards and rules in some other offshore basins.
Berman: That’s another unknown. It can’t be good for the energy industry. There are some countries that’s couldn’t care less; they’re just happy to have the rigs come into their waters. But there are certainly countries-like Canada and the UK and Norway-that will certainly put more regulations on it. It will likely have the net effect of slowing offshore operations down and making things cost more. I’m not here to say that that’s wrong.
I personally think the current administration is milking this thing for all the political capital they can. Nobody who’s handling this for them really knows much about the oil and gas business. You have a theoretical physicist running the Department of Energy and I’m sure he’s a very intelligent and high-integrity guy but he didn’t really know anything about drilling or petroleum and I don’t think Salazar is particularly schooled in it. President Obama doesn’t know anything about it. So you have a bunch of amateurs dealing with something that needs a bunch of professionals. Even on the networks and cable news shows, I haven’t seen anybody they’ve brought on who knows anything about it. A lot of interesting people get in front of the cameras and talk: college professors and oceanographers and image analysis specialists and the director of a center for biodiversity-he seems like a real smart guy-but they don’t know anything about drilling operations or petroleum. I don’t say that hyper-critically; it’s just a fact.
POR: Switching over to oil…A number of oil industry CEOs-Christophe de Margerie, James Mulva, etc.-have said world oil production is likely to top out in the 90-95 million barrels/day level, probably during this decade. Where do you see world oil production going in the future?
Berman: That’s not an area where I’ve done a lot of current research. I’m really just answering from the standpoint of what I’ve read others say. I agree with the comments of the CEOs that you named. It just seems like such a stretch to me that we could ever get to the kinds of levels of production that some groups like CERA [Cambridge Energy Research Associates] say we can. It just makes huge sense to me that the big oil exporting countries will continue using more and more of their own petroleum for their own internal uses. How does anybody think that they are going to actually increase the amount of exported oil to get to 95 million or 100 million barrels a day or whatever the forecast number is? From what I read, it looks like the odds are stacked against getting production much higher than it is right now. And we’re in kind of a good place now because demand is way down. US demand has been down nearly 2 million barrels a day below what it was in 2008; that’s huge. How long will that last? We don’t know, but assuming we’re in a recovery-and it kind of looks that way from a natural gas consumption perspective-if and when oil demand ramps up I think we’re going to know the answer very quickly. And the answer’s going to be, we’ll struggle to maintain…that’s my belief.
(Note: Commentaries do not necessarily represent the ASPO-USA position.)