Sunday, September 26, 2010

More Voices Say Oil Production Not Sustainable

Over time, facts slowly but surely go mainstream. We're not quite there yet but a growing number of voices recognize that worldwide oil production is not sustainable in the short term, meaning any time between now and the next 15 years, depending on who's doing the talking.

Now it may happen that oil production could surpass the 2005 high mark or even the 2008 high mark in the next two to eight years. But no one knows if that will happen. But one thing is certain: the age of cheap oil is gone. It's history.

Oil prices will continue to vary. They may even collapse temporarily as they did in 2008, thanks to the worldwide economic meltdown. We're on a roller coaster ride that will last for decades and it's not certain how things will look on the other side of a new age, an age of shortages and shifting dynamics. Of course, the more the United States and other parts of the world have their head in the sand, the more difficult it will be.

A few years ago, the conventional wisdom was that there was still plenty of oil. In a trivial way, that's true, but what there is no longer a lot of is accessible oil. Nor is there enough easy to reach oil to produce in sufficient abundance to offset the declines of older oil fields. Here's an interview from Forbes Magazine using a word many people would like to ignore: peak oil:
Charles Maxwell: The use of petroleum in the world is now up to about 30 billion barrels per year. The rate at which we have found new supplies of petroleum over the last 10 years has fallen to an average, of only about 10 billion barrels per year.

Charles Maxwell is a mainstream energy analyst. He says what others have noticed simply by looking at the facts: for some years now, the world has been using far more oil each year than it is discovering. The current shortfall is about 20 billion barrels a year. If you think of oil as a bank account, it's clear that the account is being drained.

As Maxwell points out
, greed and blunders by producers are creating even more problems:
What's happening is that the increase in the world's population and greater use of oil in transportation, particularly in the emerging countries, is working to lift oil demand, and that spurs us to drain a field more quickly, but not necessarily to get a higher proportion of oil out of it. So we have technology improving production capability, but actually taking the oil out faster rather than getting much more out.

What Maxwell is saying here is that we're making poor use of our technology in an effort to sustain business as usual. But we already know that such thinking is not sustainable.

In the past year, a majority of Democrats tried to pass an energy bill that would deal with climate change while also addressing America's growing need for alternative energy. But a minority of Democrats and almost all the Republicans opposed the legislation. In the meantime, according to CNNMoney, the alternative energy sector in China is creating jobs:
China has already surpassed the United States in the amount of wind turbines and solar panels that it makes. China is also gaining on the United States when it comes to how much of their energy comes from renewable energy sources.

The country that leads in the renewable energy industry, is opening the door to more home-grown jobs.

Whatever one may think of the Chinese, American conservatives are handing them the future. Keep in mind that oil will continue to be produced in the United States for many years to come. But we are continuing to buy more and more foreign oil. This is precisely where the lie of conservatives is so obvious: foreign oil does not create American jobs. But jobs in alternative energy in the U.S. would create tens of thousands of jobs. That is a simple fact. And we ignore that fact at our own peril.

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Monday, September 06, 2010

Realities of the North Dakota Oil Boom

An oil boom is underway in the western part of North Dakota near Williston. If one takes the long view, eastern Montana and adjacent parts of Canada are considered parts of the same boom involving the Bakken Shale oilfield. No doubt a combination of factors make western North Dakota easy pickings for the moment. For one thing, oil rigs are hitting few dry wells. That is, as long as they use the fracking system developed in recent years by Halliburton. The consequence is that a lot of oil, money and jobs are available in these fields. From all over the country, young unemployed Americans are heading to the area to see if they can land a job. In a bad economy, a lot of people see the boom as a good thing. For many people, it is.

But there's a lot of hype and excess associated with what's going on in North Dakota. Here's an article by Tamsin Carlisle in, of all places, The National, an Abu Dhabi newspaper:
It contains hundreds of billions of barrels of light crude oil and thousands of wells and should be scaring the pants off any oil exporter needing high crude prices to balance its budget.

It is the Bakken Shale oilfield, which sprawls across two Canadian prairie provinces and two western US states including North Dakota, under 500,000 square kilometres of land.

Its US portion is described as the country’s largest oil deposit outside Alaska. With its biggest and most accessible part in Canada, the Bakken could prove to be one of the largest oilfields in the world.

That's a lot of oil and a lot of hype. The title of the article by the way is "A New US oil rush could rock OPEC." The article is worth reading and it's important not to dismiss everything that is said about the Bakken field. But we have here a newspaper in an OPEC country where things are not always what they seem. OPEC countries, ideally, want two things: they want the oil age to last as long as possible and they want high prices as long as possible. The theory is that the more the world switches to alternative energy, the faster the price of oil will drop and the more difficult it will be to fund expensive oil projects. So, it's supposedly in the interest of OPEC to convince their biggest customers (including the U.S. but also countries like China) that the world is still awash in oil. Of course, it isn't. At the very least, the age of cheap oil is largely over.

The implication of much of the hype around Bakken is that it's a game changer that will help take care of America's oil needs for years to come. There are claims that the field holds up to 500 billion barrels of oil. However, even if the figure is accurate (probably not), the only figure that matters is the amount of recoverable oil. So what is recoverable? The USGS puts the amount at 4.3 billion barrels. That's enough to supply the oil needs of the United States for eight months. At the end of the day, that's not much of a game changer.

But let's say the Bakken oilfield is the same size as the greater Prudhoe Bay oilfield in Alaska. As of 2005, Prudhoe Bay had produced some 11 billion barrels of oil. Some estimates put the remaining amount of oil to be produced after 2005 at around 2 billion barrels of oil. That's 13 billion barrels for a field said to contain 25 billion barrels (it's a fact of life that not all oil can be economically recovered).

Production at Prudhoe Bay started in 1977. So it took almost 30 years to reach 11 billion barrels. How can we put that into context? Well, let's look at a graph of U.S. oil production (courtesy of the U.S. Energy Information Administration - EIA - click on it to enlarge):

In 1970, U.S. oil production reached an all-time average high of 9,637,000 barrels per day. In the graph, you can see how U.S. oil production then dips down until 1977, the year Prudhoe Bay started producing. After that, U.S. production began to rise for several years, but production never caught up to 1970. By 1986, even with the help of the production at Prudhoe Bay, U.S. production started dropping again. Ironically, from 1986 to 1998, oil production at Prudhoe Bay continued to grow until it reached 2 million barrels per day. Think of this for a moment: 2 million barrels a day was not enough to reverse declining American oil production.

So what's the oil production in North Dakota? According to this website (and other sources), production in North Dakota has grown, as of June 2010, to 315,282 barrels a day. Production at the Bakken field is expected to grow for some time, but for now 315,282 barrels a day is less than 16% of Prudhoe Bay's maximum production in 1998 and that 2 million barrels a day could not stop declining U.S. production.

Today, the U.S. is producing not 9,637,000 barrels a day, as it did in 1970, but only 5,361,000 barrels a day. That's a considerable drop that has to be made up by imports. Total consumption of crude oil by Americans is somewhere around 15 million barrels a day (total consumption of all petroleum products is around 18-20 million barrels a day, depending on what exactly one is measuring: if this sounds confusing, blame the oil companies and their lobbyists who want as much confusion for consumers as possible so that the reality is not that clear).

Clearly we import far more petroleum than we produce. Clearly, oil production continues to decline. Even if North Dakota and Montana combined were miraculously able to ramp up and produce 4,500,000 barrels of oil a day by the end of twenty years (it takes time to build up production), we would not pass the maximum oil production of 1970. Why? Because in those twenty years, production in older oilfields would still be declining, just as older oilfields were declining during the buildup of Prudhoe Bay's maximum production years.

In the meantime, during those twenty years, the population of the U.S. would also be growing and we would be importing more oil than ever.

One can argue that the Bakken oilfield is, for the most part, if we ignore certain issues, helping the American economy. If the Bakken oil field does nothing more than help sustain the American economy for just a few years more, then the extra time must be used to help transition an economy to something that isn't heavily dependent on oil or other fossil fuels. People will still be drilling oil for some time to come. But oil is no longer the future and no longer enough to sustain our economy.

The oil barons, whether they live in the Middle East, Texas or elsewhere, don't care much about the future or much about the world. They care about grabbing the maximum for themselves. It's no way to run a civilization.

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