Oil And Gas “Rust”: An Evil Worse Than Depletion

Offshore Technology Conference May 5, 2008 Houston, Texas by Matthew R. Simmons Chairman Simmons & Company International

Some of the slides are:

If Infrastructure Not Rebuilt It Creates A Double Whammy A worst case Black Swan 

• Demand surges and creates run on the inventory bank
• Supply of oil and gas heads south:  Output down 10% – 20% This is “lights out” for our society. Odds of occurrence higher than most houses burning down.
• Infrastructure collapses, limited use to 50% of possible supply
• “Lights Out” is not a pretty picture: Without energy, our system shuts down. Water, food, health care, etc., all wind down in a few days. Food scarcity is “Social Chaos 101.” Raw materials, mineral extraction and refining all extremely energy intense

Steel begins to corrode the day it is cast

• The Oil And Gas “Body” Is All Built Out Of Steel
• Almost all oil and gas fields reside thousands of feet underground.
• Almost all “newer” oil fields lie under the sea.
• Oil has to be extracted, processed, refined and transported over long distances.
• The entire oil value chain is built of steel.

Rust Never Sleeps

• Mariners know that rust never sleeps.
• Scientific American experts knew this in 1896.
• The oil industry never grasped this profound risk as it built a house for oil out of steel.

Oil And Gas Infrastructure

A Vast Spider Web Of Steel 100,000 individual oil and gas wells in USA alone:

Casing and tubing

• Wellheads
• Processing equipment and gathering lines

335,890 miles of pipeline in USA alone

• Crude oil pipeline
• Natural gas pipeline
• Finished product pipeline

Tank Farms: USA has 1,127
Refineries: World has 657 refineries.
Finished petroleum products systems: 164,292 gasoline stations in USA

Declining Oilfields Accelerate Rust

• As oil declines, brine generally takes its place.
• Sweet light oil turns into sour heavy oil.
• Declining oil basins rarely have sub-surface or surface facilities replaced (why bother?)
• All these factors accelerate the encroaching corrosion and rust

Corrosion Loves Dirt, Brine, Sour Gas And Seawater

Corrosion is the visible scabs and scars of rust.Paint can temporarily conceal corrosion, like a Band-Aid over a cut.But soon, the Band-Aid turns brown. Corrosion under dirt or seawater cannot be seen. Corrosion breeds fast in these environments.

The industry made a risky bet when it threw away wood and turned to steel

From 1860 to 1901 The Oil System Used Barrels And Wagons. Wooden barrels were built to store/transport oil on wagons. The wood would absorb oil and “caulk.”