A strategically timed item in the New York Times presents an overview of the geology that makes the Gulf of Mexico so rich in oil, how new technology has enabled us to track these deposits - and the risks we run to extract them.

It was published Wednesday [July 28], one day before a special judicial panel in Boise, Idaho began to consider “how to bring order to the hundreds of civil lawsuits” stemming from BP’s Gulf of Mexico oil disaster. The seven judges will “consider which U.S. court, or courts, should oversee hundreds of spill-related suits by injured rig workers, fishermen, investors and property owners,” reports Reuters – as oil companies themselves begin to count the cost of an offshore drilling ban. It states:

Potentially adding its name to the line of claimants, Royal Dutch Shell Plc idled seven rigs and took a $56 million charge related to the drilling ban on Thursday. Saying the ban would reduce its production by almost 3 million barrels this year, the company did not rule out reclaiming the cash from BP.

Shell, one of the biggest oil producers in the Gulf of Mexico, said it had idled rigs rather than move them elsewhere because the ban's six-month duration meant it was not profitable to redeploy them to other areas.

Coincidentally, the New York Times item happily sugests that the Gulf’s reserves, which 25 years ago seemed exhausted, could postpone peak oil.

Even if you discount such hype, it provides a fascinating and balanced account of how industry dismay at test drills producing little more than salt turned to feverish excitement once everyone realized that salt, in fact, indidicated large oil reserves. It states:

Do you know the old Bible reference, don't build your house on sand?" said William Galloway, a geologist at the University of Texas at Austin. "Well, building your house on salt goes beyond anything in the biblical expression."

Gulf geology is not only about salt, of course, but scientists' improved take on the rock is one of the best examples of how, for 50 years, the Gulf has served as one of the world's foremost geology labs. Backed by society's endless thirst for oil, geologists have guided drillers to ever deeper and riskier oil reservoirs.

So the good news is that there is more oil down there than we earlier thought – the bad is that, as the ongoing Gulf of Mexico disaster is proving, getting at it is a risky business. One blowout can put an oil major into a desperate fight for survival.

But the industry needs to follow the oil, and the item continues with some bullish quotes from Clint Moore, vice president at ION Geophysical Corp:

Moore, while at Anadarko Petroleum Corp., was one of the earliest geologists to probe beneath the Gulf's salt, helping discover the Mahogany oil reservoir, the region's first producing subsalt field, after burrowing through 3,825 feet of salt in the early 1990s. The productivity of these salt-based fields could prompt a re-evaluation of peak oil's arrival, he said.

"If the volumes are there, this will be a significant addition to the world's resources," he said.

Of course, there are complications. Deeper wells sit at higher pressures, increasing the risk of blowout. The deepest exploration well, drilled by the ill-fated Deepwater Horizon, is 35,000 feet down, several times the depth of BP's Macondo well. And further oil production will only add to the greenhouse gases humans pour into the atmosphere each year, slowly increasing global temperatures.

A New York Times item from 2006, Drilling Deep in the Gulf of Mexico, suggested: “According to the most optimistic estimates, there could be 40 billion barrels of undiscovered reserves in the deep water, which starts at about 1,500 feet, enough to satisfy American consumption for more than five years.”

Clearly, five years’ domestic consumption will not do much to deter the onset of peak oil. And that is the optimistic best. A June column by longtime peak oil writer Tom Whipple, The peak oil crisis: the real gulf crisis, that suggests the Gulf may not live up to this hype. He writes:

The international oil companies that are drilling in deep water certainly are not about to connect the dots for us, but independent observers say it is looking like our new deepwater oil wells are only going to be producing some 10 or 20 percent of initial estimates. Deep water oil is a whole different game with which no one has much experience. None of the deepwater fields have been producing long enough to have established any track record as to just how much oil can ultimately be recovered from deep beneath the sea where temperatures and pressures are extreme.

This details declines in output at the Thunder Horse (“instead of production increasing to the rated 250,000 b/d, production began to drop at 2-3 percent each month so by the end of 2009 production was down to 60 or 70,000 b/d”) and Neptune projects (“It now looks as if the platform that was supposed to produce 150 million barrels of crude will produce on the order of 33 million”).

Meanwhile, global consumption of oil is reported to be currently close to its 2008 high of 86.6 million barrels a day. In June the International Energy Agency (IEA) presented two “oil demand cases for the next five years,” essentially predicting that by 2015 the world will be burning 90-92 million barrels per day, depending on factors including growth rates and conservation measures.

It’s interesting to note that the IEA presentation suggests that at the higher levels of demand, “OPEC spare capacity. . . begins to decline again as soon as next year, reaching 3.6 mb/d by 2015. . . we anticipate a tightening global balance, with surplus capacity falling below 5% of global demand. This could lead to more jittery markets ahead, after what has been a prolonged period of relative price stability over the past year.” This could be taken as a reference to peak oil – what better way to chart the arrival of peak production than charting the decline in Opec’s spare capacity? Surely, peak oil can be defined as the time of zero surplus production capacity.