They know something about sailing and working at sea. And the Norwegians have been drilling in the North Sea for 60 years or so.

In the image above, note how subsea systems have evolved — 1970’s massive oil platforms have given way to subsea well completions…

Now the Norwegians are ready to take it to the world. And the world is going to buy Norwegian goods, because some of that stuff is just too good not to own. Here is an example…

Norway’s StatoilHydro

Norway has many outstanding firms that set world standards in the offshore business. One company is StatoilHydro, a recent merger of the state oil company Statoil and Norsk Hydro. At the recent Offshore Technology Conference in Houston, StatoilHydro received an award for its work in developing a massive gas field in the North Sea, called Ormen Lange.

Ormen Lange lies under waters between 2,500-4,000 feet deep. Statoil drilled 24 wells to recover 70 million cubic meters of natural gas per day and pipe it all dozens of miles ashore to a facility in Norway. Then the gas gets piped through a 48-inch pipeline under 725 miles of North Sea to Britain. Easy, right? Ummm. No.

Think of it in terms of building the Alaska Pipeline — underwater.

Everything about Ormen Lange is big and impressive. The water is deep. The drilling is difficult under the furious North Sea. The bedrock geology is tricky. Producing gas requires complex machinery be installed on the seafloor. There are long pipe runs, with some pipe lying on the seabed at 35 degree angles.

Moving the natural gas to England is a world-class feat in and of itself, through the longest subsea pipeline in the world.

Still, in the global scheme of things, Ormen Lange is just one project in this world. And there are dozens more like it in the offshore realm. The capital expenses for new energy projects are gigantic. Everything costs big bucks now. Prices are rising for steel, cement, equipment, machinery, cost of capital, labor (if you can find trained labor). The numbers are mind-boggling. How mind-boggling? In one talk, our buddy Matt Simmons mentioned it will cost $100 trillion over the next seven years to fund the energy projects the world needs.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Just Like Building the Alaska Pipeline, Underwater 

Fed asserts new powers. “Banks, hedge funds and other financial institutions could find their investment strategies curtailed by the Federal Reserve to reduce the risk to the economy from asset bubbles, the US Treasury said yesterday,” reports the Financial Times. As usual, government meddling creates a problem which is to be solved by more government meddling. We can rest assured there will still be asset bubbles — just not in the same sectors as the previous bubbles.

Oil traders take rising gulf tensions in stride. Still a bit above $115 despite the arrival of a second U.S. aircraft carrier in the Persian Gulf, with hawkish rhetoric from Defense Secretary Robert Gates to match. (So much for the notion that Gates was in the Poppy/Jim Baker/Brent Scowcroft “realist” mold.) Curiously, a Navy spokesman plays it all down, saying the Lincoln is just taking over from the Truman, and the overlap won’t last longer than “a day or two.” We shall see.

Q1 GDP comes in at 0.6%. John Williams called it on Monday (and earlier, too): We’re in a recession, but the official figures won’t be allowed to reflect it in an election year.

Elsewhere: More flight from the dollar; Chinese exporters are asking Europeans for payment in euros. And don’t expect any increased oil production from Mexico, not based on the squeals elicited by the president’s rather modest proposals to reform the state oil company.

And finally: “Mayor Daley well placed to be Democratic peacemaker,” says a headline in the Financial Times. As an ex-Chicagoan, I advise you to read this profile of “Da Mare” in its proper context: Daley’s moving to the next stage of a charm offensive to burnish Chicago’s image for an international audience in hopes of landing the 2016 Olympics next year. Time will tell if his efforts can overcome things like a recent wave of shootings and a public transit system that’s an international embarrassment.

What’s he talking about? Mexico has just over 12 billion barrels of oil reserves, or ten percent of the world’s total. It exports 1.5 million barrels per day to the U.S., putting it third behind Canada and Saudi Arabia, and just ahead of Nigeria and Venezuela.

Source: U.S. Energy Information Administration

The trouble is that Mexico’s government has been using the state oil company, Pemex, like a cash machine that never runs out. Pemex contributes 40% of the total tax revenues of Mexico’s Federal Government. It’s a resource of the people, for the people, and by geology. But you cannot print oil on a printing press. There is no such thing as “just in time” energy resources.

Mexico’s government has not been investing enough in exploration or new production to top off Pemex’s reserves. Those reserves are being depleted. What’s more, its largest oil field Cantarell, is in an alarming state of decline. Cantarell was discovered in the Gulf of Mexico in 1976 by a fisherman. Estimates are that it was a 20 billion barrel discovery.

Mexico has been producing from it ever since in huge numbers. But those production numbers appear to have peaked in 2004 at around 2 million barrels per day. Today, Cantarell produces just 1.4 billion barrels per day-a loss of 600,000 barrels a day in four years. Overall Mexican production peaked at 3.4mbpd 2004 but is now under 3mpbd. In the first two months of this year alone, Mexican oil production fell 6.4% compared to the same time last year.

Enjoy the oil while it lasts folks. Of course, it’s going to last for a very long time. Peak oil doesn’t mean that all the world’s oil will be gone. It means that all the world’s cheap oil will be gone.

That loss will have a radical effect on economic and social arrangements that were built on cheap energy. And for nation states like Mexico (and Venezuela, and Saudi Arabia) that finance welfare states with oil revenues, it will be a disaster unless oil profits are turned into income producing capital assets-instead of merely redistributed as transfer payments…or tuned into new Towers of Babel.

“We should leave oil before it leaves us,” said International Energy Agency chief economist Faith Birol in an interview with German monthly journal International Politics. There’s an idea.

Birol says the world has time to make other energy plans, but not much. The rise in the oil price will be gradual he says, as a function of declining production and growing demand. “But looking at this long-term, it becomes clear that nothing changes whether oil runs out in 2030 or 2040 or 2050.”

We are assuming he’s referring to cheap oil and not the world’s total supply of oil. Either way, the warning is unambiguous. “One day it will definitely be finished. And I think we should leave oil before it leaves us. That should be our motto. We should prepare for that day with research and development, how we can replace oil, what kinds of living standards we will be able to maintain, what alternatives we can develop.”

Here here. Finding the commercial alternatives to oil is mainly what we’re up to in the Australian Small Cap Investigator.

Dan Denning
The Daily Reckoning Australia

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