For the director of the Unicamp Petroleum Studies Center, there is no
record in history in which demand exceeded supply for a very long period

PETROLEUM
'No one will be caught by surprise', says Suslick

CLAYTON LEVY

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Ahe recent fluctuations in the price of oil have left society on alert and brought back a picture of uncertainty about the future. For many, the rise and fall of indicators are precursory signs of imminent exhaustion. Oil would be running out and existing reserves would not be able to meet global demand for much longer. Furthermore, the abnormal growth of important economies, such as the United States and China, would be accelerating this process by increasing their domestic consumption. For professor Saul Suslick, however, one of the greatest Brazilian experts in oil economics, there is a lot of alarmism in the air. According to him, oil will not run out anytime soon. Before this happens, society will promote the transition to other energy sources. “No one will be caught by surprise”, he guarantees. Professor at the Institute of Geosciences (IG) and director of the Center for Petroleum Studies (Cepetro), at Unicamp, Suslick says that the catastrophic scenarios are quite far from reality. “Oil depletion is not a process that occurs instantly within the current context of society,” he explains. “The availability of oil is understood in the industry as an interaction between the effects of economic viability and technology”, he adds. In the interview that follows, he interprets the current situation, talks about the medium and long term perspectives, and Brazil's situation in the global energy context.

Journal of Unicamp – The growth of the economy in the United States and China significantly increased the demand for oil in both countries. What impacts, in the medium and long term, could this have on the planet’s supply?

Saul Suslick – If this demand is persistent and there is no monitoring of supply over long periods, we may experience pressure in this regard. By long periods we mean something around two years or more. But history records no event in which demand exceeded supply for a very long period. In the oil industry, when prices accelerate, marginal producers, whose production costs are very close to the value of the product, occupy a larger space. This causes the supply level to increase and balance the market again.

JU - How is the oil industry facing the uncertainties regarding the discovery of new deposits that could balance the world's supply?

Suslick - The oil industry works with a high level of uncertainty. Therefore, it is normally risk averse. Depending on price developments, it has a certain volume of exploratory capital. It is the resource that they invest in generating new deposits. This exploratory capital depends on a set of factors, such as current prices, cash flow, availability of areas and taxation. If we look at history, there have been no discoveries of large fields. Since the 70s, the volume of new oil discovered each year has been falling. The fields discovered recently are considered medium volume. This worries geologists a little. On the other hand, technology and recovery levels have been increasing in reservoirs, reestablishing balance.

JU - Currently, for every ten wells drilled, only one to three result in commercial accumulations. Does this average tend to decrease?

Suslick - Despite the difficulties in finding giant fields, the exploratory success rate has been increasing for many companies. The industry is increasingly sophisticated in its exploration processes to reduce the margin of error. Before defining the location of a well, there are a series of studies to better understand the petroleum system from a geological point of view and the processes of the probable reservoir. Discovery costs have also been falling. This data shows that technology is compensating for the difficulties.

JU - What are the current indicators of oil shortages?

Suslick - There are many. Traditionally, measured reserves are used for this purpose. However, measured reserves give a vision of what can be withdrawn today, according to a given technology already mastered and a given standard of economic viability. In fact, there are several views on this matter. The most optimistic say that if prices start to increase a lot, new technologies will immediately emerge to generate energy from other alternatives. History shows that this has happened. Others treat the problem of scarcity in a more critical way. They see oil as a fixed stock and consider that physical exhaustion of the resource will actually occur. I see the picture a little differently. If we look at history we will see that no mineral resource ended due to physical scarcity. Economic scarcity comes first. We have precursor signs that keep us away from this danger. It is impossible to catch society by surprise with the available mechanisms. These precursor mechanisms help direct resource use toward a more rational form or toward a substitute.

JU - Until recently, it was predicted that the resources would be sufficient for another thirty years of supply. It appears that this expectation has now changed. So what is the scenario that can be considered in the future?

Suslick - These studies only considered known reserves. In the case of oil, I think we will have the resources for at least two more generations or something around sixty years. This considering the known and potential reserves, as well as unconventional petroleum resources (heavy oils, tar sands hydrates, etc.),

JU - Does this mean that oil is not likely to run out anytime soon?

Suslick - It will end one day, but not in the way we are used to hearing. Oil companies are already transforming into energy companies. They themselves will use the resources obtained from oil to subsidize the entire process of migration to renewable and non-renewable energy. For several decades we will experience a period of transition, in which companies in the oil sector will channel resources to develop other energy alternatives. They will do so the moment they see signs of economic and environmental exhaustion. The physical scarcity of oil is a long way from happening. Economic and environmental scarcity will come before then. I believe it will be a relatively smooth transition.

"Our level of geological ignorance is still very high"

JU - Does this mean that oil scarcity indicators could allow society to plan a smoother transition towards other energy options?

Suslick - Yes. Detailed studies on oil availability recently carried out by the US Geological Survey estimate that oil will continue to play a preponderant role in the world economy for another half century. Precursor signs of scarcity such as prices and costs would immediately motivate an arsenal of technologies and alternatives so that the process of alternatives follows its usual and gradual route, in the same way that humanity went from steam-powered energy to coal, and later to oil, and so on.

JU - From this perspective, when would peak production be reached, after which we would enter a downward curve?

Suslick - A study published in 2003 by Richard Duncam in the Oil & Gas Journal showed three scenarios. In the first of them, the peak would be reached in 2003 with 66,7 million barrels. The second scenario pointed to the peak in 2006, with 78 million, and the third for 2016, with 81 million. None of them were confirmed. It's 2004 and we've already passed the 82 million per day mark. Personally, I believe that the peak should be reached between 2018 and 2020 with a mark just above that 82 million.

JU - During the 70s, in the period when alarmist predictions and reports such as that of the Club of Rome flourished, it was estimated that the world supply of oil and other mineral goods would enter into crisis in the year 2000, as in the USA in that decade they had already been consumed. half of its oil reserves. These predictions were not confirmed. What has changed since then?

Suslick - A lot has changed. The models used at that time to make these predictions were interesting, but the data feed was very poor. The shocks of 1973 and 1979 reshaped the penetration of oil into the world economy. Developed countries prepared to make adjustments to their matrices and their consumption habits. Furthermore, the Club of Rome's forecasts were based on a very static conception of reserves. This type of projection, however, must be done in a dynamic way. These predictions were also not confirmed thanks to technology and new discoveries in sea basins in Brazil (Campos Basin), North Sea (England and Norway), West Coast of Africa and in the Caspian Sea areas.

JU - In your opinion, why were previous predictions not confirmed?

Suslick - Sometimes big surprises appear on the international scene, especially outside the Middle East regions. Significant discoveries occurred in Russia after the fall of the Soviet Union. New technologies allowed the expansion of its oil production. Currently, Russia already produces almost the same volume as Saudi Arabia, which is the largest producer in the world. This is also happening in the West African Atlantic, in countries like Nigeria and Angola, and in the Gulf of Mexico. Even in Brazil I believe we will still have big surprises. This is new data that adds to the scenario.

JU - What leads you to believe that Brazil could have big surprises in store?

Suslick - This perception is based on the history of investments made in Brazil, which were few in the exploration area, and the return on these investments, which compared to other regions of the world was well above average. Based on our oil potential, we could have big surprises with oil that is not so easy to find but with considerable volumes. I believe, for example, that the gas discoveries in the Santos Basin represent just the tip of the iceberg. Obviously, we do not yet have concrete data, but our geology is favorable to the generation process. This will require a little more exploratory strategy as well as better knowledge of the basins and also an increase in the volume of drilling. We don't get much bore in Brazil. There are only 415 exploratory wells drilled between 1988 and 2003. That's very little. The ideal would be to reach this number every year. But this can only be done as the level of attractiveness of the areas increases, which depends on competence in the area of ​​geophysical surveying.

JU - Brazil currently produces around 1,49 million barrels per day of oil and 39,63 million cubic meters of gas. Will this production tend to be maintained or could it still increase?

Suslick - Without a doubt, it can be increased. Currently our demand is on the order of one million and seven hundred thousand barrels of crude oil per day. To achieve self-sufficiency, we simply need to increase this production by 15%. There are studies showing that by 2006 we should have reached self-sufficiency. It is estimated that the discoveries of Jubarte, Cachalote and six other important oil accumulations in the Campos Basin contain a reserve of approximately 2 billion barrels of oil, albeit with 17º API (heavy oil). The reserves of 450 million barrels of light oil in the Espírito Santo Basin, 150 million in the Sergipe-Alagoas Basin and approximately 435 million barrels of oil and 419 million cubic meters of natural gas in the Santos Basin in the close to the largest market in the country. But this must be viewed with caution. We don't know how long we will achieve this self-sufficiency. If demand increases a little more, we will probably have difficulty maintaining it.

JU - Brazil underwent important changes in the oil and natural gas sector after the second half of the 90s, which culminated in measures to open up the participation of new private agents in the sector. What impacts did these changes produce?

Suslick - In the five tenders carried out by the National Petroleum Agency (ANP), more than 80 blocks were purchased by more than 40 new national and international oil companies that have been giving a great boost to this stage of the exploration process. On the other hand, geological knowledge of Brazilian basins is still very fragmented. The ANP, as a regulatory agent, should be more aggressive in investing more in basic surveys. She has done this, but at a slow pace. If there is no firmer policy, we will have difficulty attracting large companies to new tenders because they will be analyzing the existing level of risk. This basic geological survey must be provided by the sector's regulatory body. If we don't do this we will kill the goose that lays the golden eggs. Our level of geological ignorance is still very high.

"It is impossible to take society by surprise with the mechanisms available"

JU - Will the reserves/production ratio be sufficient to meet demand in the future?

Suslick - If we are based on current data, we will see that Brazil is in a comfortable situation in this regard. But we cannot rest on this data. The reserve/production relationship must be seen in a dynamic way. If there is any growth in the pace of demand, we will inevitably have to resort to a new stock of measured reserves. To do this, we cannot interrupt the deposit generation cycle, which can take five to ten years. This comfortable situation represents the right time to encourage this work. We already have technical training for this, both in universities, research institutes and companies.

JU - The deep water environment is a trend that is evident not only in Brazil but in several producing areas, mainly in regions outside the Persian Gulf. This requires a high degree of technology. Is technological innovation in this area developing at the necessary pace?

Suslick - I think so. Petrobrás faced this problem from the beginning. Soon after the discovery of the Campos basin, it was immediately realized that although oil resources existed, it would not be easy to extract them. On the one hand, this was positive because the company realized the need to invest in research and development. As a result, the company formed an important technical team to face this challenge. Unicamp and other universities actively participated in this process by training masters and doctors, as well as participating in the company's deep water technology programs. If we evaluate the process from the beginning, we will see important progress. The first deepwater program was a thousand meters. Then we went to two thousand and, today, we are already at three thousand meters. This three thousand meter program already allows access to deposits that were previously not economically viable. Petrobrás invests around six hundred million reais per year in R&D, which is not much, considering that its revenue is around thirty-one billion.

JU - Data collected by Unicamp indicate a declining trend in discovery costs in the last decade. To what can this be attributed?

Suslick - There are several factors. Technological advancement is among the main ones, especially in the area of ​​geophysics (seismic). A second aspect is drilling technologies. Reaching a well at a depth of two thousand meters and then drilling it for another three thousand meters until reaching the objective represents a technological effort comparable to sending an astronaut to the moon. New technologies such as 3D seismic, horizontal wells, intelligent production systems and platforms with structures for extraction at depths of over 2000 meters are already a reality and have made huge reserves of oil and natural gas accessible. One of the world production records with a water depth of 1.877 meters was achieved by Petrobras in the Campos Basin. Despite being an industry created at the beginning of the century, the oil industry currently uses frontier technologies that are at the same level of complexity as the aerospace and military industries. This technological advance has also helped companies reduce the margin for error.

JU - In a recently published article, you say that environmental restrictions are expected to have much more important impacts on oil consumption than on its exhaustion. Why?

Suslick - Fossil fuels produce large amounts of CO2 and, currently, several institutions, governments and companies are seeking the development and use of cleaner alternative energy supplies, with a lower level of impact on global climate change and consequently on the environment. The increase in the greenhouse effect would be the most severe damage. Increased levels of CO2 in the atmosphere absorb ultraviolet radiation, preventing it from escaping into space. In turn, the increase in atmospheric warming is caused by excess CO2 emissions. One part of the solutions would be the collection and storage of CO2 in oil and gas reservoirs known in the literature as CO2 sequestration. The objective would be to make this process viable and environmentally safe. It is estimated that oil will not be a useless asset in the coming decades. It's not over and it won't be over. However, from a perspective of seeking an environmental balance, natural gas has been gaining ground as its immediate successor. Despite regional differences and market profile, the share of natural gas in the global energy balance has been growing substantially, currently representing 24% of global primary energy consumption.

JU - Is there already enough technology for this?

Suslick - The technological challenges are still great, such as transporting gas in a way that is not just through gas pipelines, which involve high investments and low efficiency. Another important component in the question of the future of oil and gas in the 21st century refers to the growth in energy demand caused by several countries seeking to improve the quality of life of their citizens. The scenarios that have been designed would be a portfolio of energy sources that would result from a combination of a moderate demand for hydrocarbons (oil) with an increase in demand for a mix of alternative sources. One of the key elements in this new scenario would be sustainable development that seeks to integrate social and environmental concerns into a development plan that optimizes economic profitability and value creation.

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