In Hammerfest Norway energy executives were suduced by vast quantities of natural gas in one of the world's least hospitable places.....90 miles of Norway's northern coast, beneath the Arctic Circle. Freezing winds and blanketing snowstorms lash the region. No oil company knew how to operate in such harsh conditions.
But Norway has solved the problem.......one of the most advanced natural gas plants is coming to life. Gas will start crossing the ocean in specially designed ships, feeding into the pipeline network for America's East Coast. It will be the first commercial energy production from waters north of the Arctic Circle.
As global demand soars and prices rise, energy companies are going to the ends of the earth to find new supplies. In Kazakhstan, petroleum engineers are braving wild temperature swings in the shallow waters of the Caspian Sea to tap the biggest oil discovery of the last 30 years. They are drilling wells 6 miles deep in the Gulf of Mexico. And on the island of Sakhalin, off far eastern Russia, they have drilled horizontal wells through miles of rock to produce oil from a stretch of ocean notable for giant icebergs.
But as the industry extends its reach, the quest is becoming more arduous. The cost of producing new oil and gas is rising fast, and companies are troubled by worsening delays. Drilling rigs are scarce. Engineers, geologists and petroleum specialists are in critically short supply. And the POLITICS of oil and gas are getting trickier, with producing countries demanding a bigger share of the revenue and angry about project delays that postpone their payments.
Industry executives say their ability to keep up with global demand is badly strained. "We're facing bigger risks and bigger difficulties when we go into new frontier regions", said Odd A. Mosbergvik, a senior manager at the dominant Norwegian energy company, StatoilHydro. "But this is why the oil industry is for big boys. It's a big gamble."
The industry's new reach is shifting the economics of energy extraction. According to a recent study, discovery and development costs, a key indicator for the industry, tripled from 1999 to 2006, to nearly $15 a barrel. Last year alone, companies spent $200 billion developing new energy projects worldwide according tot he study by the consulting firms John S. Herold Inc. and Harrison Lovegrove- an amount larger than the economies of 147 countries.
These higher costs mean that the industry needs higher energy prices to finance new projects. They are also constraining its ability to expand quickly. "There are no easy barrels left," said J. Robinson West, chairman of PFC Energy, an industry consulting firm in Washington. "The only barrels are going to be the tough barrels."
There is plenty of oil and gas still in the ground, energy executives say. But the global consumption is rising SO FAST that they must keep looking for new sources. Despite worldwide concern over the role of fossil fuels, U.S. government specialists project that global oil and gas demand will increase by some 50% in the next 25 years.
At the same time, the big discoveries of the last 3 decades, like those in the North Sea and on the North Slope of Alaska, are drying up. So with the rising prices of oil and gas.....topping @ over $110 a barrel, it is not a matter of inflation or a weaker dollar as some economists would suggest, but rather a simple matter of supply and demand and that supply is quickly running out.