The Age of Tough Oil

On January 28, 1969, Union Oil Company of California suffered a blowout. It took ten days to plug the well - - an estimated 100,000 barrels of oil was released in the Santa Barbara Channel. The well was drilled in less than 200 feet of water, to a total depth of 3,500 feet. This was the Age of Easy Oil.

The Deepwater Horizon illustrates the Age of Tough Oil - - the extraction of oil in ever more remote places where risk and uncertainty are key parameters. The Deepwater Horizon well was being drilled 50 miles off the coast in 5,000 of seawater to a total depth 18,000 feet. Drilling to 25,000 feet and extracting oil from Canadian tar sands -- the Age of Tough Oil will be expensive, technically challenging, and environmentally risky.

The Age of Tough Oil in the context of the technical and economic also meets the Age of Tough Characters. Approximately 75% of our global crude oil reserves are now owned by the following national oil companies:

• Saudi Aramco
• Gazprom (Russia)
• CNPC (China)
• NOIC (Iran)
• PDVSA (Venezuela)
• Petrobras (Brazil)
• Abu Dhabi National Oil Company
• Kuwait Petroleum Corporation
• Petronas (Malaysia)

We tend to focus on just the ExxonMobil's and British Petroleum's - - but our future runs right toward Los Otros (The Others). The Age of Tough Oil collides with The Age of Tough Characters. All of this is in an environment where only four percent of Chinese consumers own automobiles. In 2009, we had 700 million cars on the road worldwide - - by 2025, that number will probably top 1.25 billion.

The Age of Tough Oil plus The Age of Tough Characters in the age of increasing demand - - look for much greater risk and uncertainty associated with the development and distribution of our hydrocarbon based energy sources.