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Page added on November 25, 2012

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Don’t gush over prospect of US as oil king

General Ideas

For one thing, it confirms that conventional oil production is in serious decline. This is the “light sweet” crude that is inexpensive to extract and refine, one of the key building blocks of modern industrial society.


Now that we have a pause in the important news, the Petraeus sex scandal, let’s turn to other recent tidings.

Specifically, a forecast that the United States will be the world’s largest oil producer around 2020 and North America will become a net oil exporter a decade later.

These predictions come in the latest World Energy Outlook report from the International Energy Agency (IEA), and the media reported them as a “game changer.” So much for peak oil. Happy motoring days are here again!

Let’s set aside past criticism of this intergovernmental group’s forecasting methods and credibility. Taken on its own, the latest outlook is far more nuanced and cautionary. (Today I’m going to concentrate on oil rather than natural gas or coal.)

For one thing, it confirms that conventional oil production is in serious decline. This is the “light sweet” crude that is inexpensive to extract and refine, one of the key building blocks of modern industrial society.

Production probably peaked around 2005, a time when many producers started holding back their supplies for domestic use.

In addition, much of the forecast is predicated on conservation and technological advances to slow demand.

Electric-car sales are small so far and the battery technology is still fairly primitive. We can’t assume electric cars will displace the internal-combustion engine soon.

Hybrids are more promising, but still not sales leaders. Raising fuel economy helps, too. But these are all baby steps in the large transition needed.

Another wild card is assuming that precarious Iraq will represent 45 percent of the growth in total world oil production by 2035.

“Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path,” the agency states.

The United States never stopped being a major oil producer. It did hit peak in the Lower 48 states in the early 1970s, which meant half of the recoverable oil had been pumped and burned away. But the big problem is that we are a huge oil consumer, using 19 million barrels a day, the largest in the world.

The game changer is what I’ve been writing about: higher energy prices. This alone makes it economically viable to go after what the industry calls “tight” oil, which is trapped in shale deposits, as well as tar sands.

For example, the average well in North Dakota’s Bakken formation needs a price of at least $80 to be viable. Higher prices have also restarted the low-producing stripper wells in places such as Texas and Oklahoma.

Bringing this unconventional fuel to market calls for massive capital investment, not easy in the aftermath of the financial crash and one with many risks.

For example, shale plays deplete much faster than conventional fields. Companies must keep drilling just to stay even.

The hydraulic fracturing, or fracking, used to get at shale deposits requires huge amounts of water — an especially precious resource this century — and causes massive pollution. Tar sands carry their own nasty environmental consequences.

In this highly complex issue, nothing is either-or, always-never.

We will discover new sweet crude. It just can’t offset the declines in the huge “elephant” fields that fueled the 20th century. Real net increases will come from shale oil, tar sands and natural-gas liquids. Many of the reserves will be sour: low quality, costing heavily to refine into fuels.

Also, we won’t “run out of oil.” The same price mechanism bringing unconventional sources online would always rise enough to keep plenty of oil around.

Critically, we will continue to see price volatility. The cost of extracting oil will rise until it causes the economy to slow. Then prices will fall, but this won’t feel like a relief to drivers because we’ll be in a recession or slowdown. The cycle will keep repeating itself, especially as demand grows from developing countries. The IEA notes this phenomenon is already holding back the global economy.

Increased American oil production flows into the global market. So barring protectionist legislation, we’ll be bidding against the world for this commodity. And that world will continue to have a ravenous demand with destabilizing risks.

One example is Beijing’s faceoff against other nearby nations over the resource-rich South China Sea.

Something prominently missing from the report is an assessment on the energy return on energy invested for the new sources, including biofuels and even some clean energy technology. In many cases, they may require more hydrocarbon inputs than the hydrocarbon outputs realized.

Unfortunately, happy motoring days are not here again. This last great rush to grab fossil fuels and dump their greenhouse gases into the atmosphere will ensure that the worst scenarios of climate change come true.

And this is no tree-hugger, hippy-dippy stuff: Climate change carries enormous economic costs.

They are greater than we can imagine, although a barrage of recent reports from the World Bank, the humanitarian institution DARA and the United Nations give a sense of the death, disruption and reduction of global GDP we can expect.

As Bob Dole would say, “Where’s the outrage?”

13 Comments on "Don’t gush over prospect of US as oil king"

  1. actioncjackson on Sun, 25th Nov 2012 6:35 pm 

    Nailed it. Also, not going to help matters with the global, debt based, fractional reserve, fiat currency, ponzi scheme, financial meltdown. If only the central banks could print oil.

  2. SOS on Sun, 25th Nov 2012 9:11 pm 

    Cost on tight oil are driven by government intervention. You will see intervention sky rocket now that there is no election in site. I expect, at least for a while, that politics and over regulation are going to turn production down. You (I mean that collectively) will then think we dont have enough oil. That will temper your rage toward the government because you will be fooled about supply and blame extremely high prices on “peak oil” as you do now. Your rage will be redirected by other propaganda. Maybe to hummers or something?

  3. SOS on Sun, 25th Nov 2012 9:12 pm 

    Maybe global warming?

  4. Ham on Mon, 26th Nov 2012 12:45 am 

    Garbled. The antidote is then what? Your rose tinted prescription to turn the US into a vast petro/gas state with mountain top removal, without regulation to reach supply Utopia?
    The deluded idea that the Government is to blame for everything, including spreading false ideas that the climate is changing (a rightwing mentally defective argument) is pretty much bonkers.
    Get this; pretty much ALL the World’s Scientists agree that climate change is occurring and there will be consequences.
    When there is no more Government, will you still put the blame on them?
    Methinks your (change the record it’s getting rather boring now) scapegoat will then have disappeared, along with your vacuous arguments SOS.

  5. Keith_McClary on Mon, 26th Nov 2012 2:35 am 

    Jon Talton: Don’t gush over prospect of U.S. as oil king

  6. Gleb on Mon, 26th Nov 2012 2:40 am 

    Oil will cost too much by then and not many countries will be able to afford it. Countries that are poor will be amoung the billions starving then.

  7. Others on Mon, 26th Nov 2012 2:43 am 

    In 2013 we will know the cost of bakken and whether its going to bring down the cost of oil or not.

    As the # of vehicles sold keeps increasing, oil prices will continue to increase.

  8. Beery on Mon, 26th Nov 2012 3:08 am 

    “Cost on tight oil are driven by government intervention.”

    Diddums! Subsidies not doing it for you? Maybe we should take those away and leave the oil industry to fund itself. Then we’ll see how economical fracking really is.

    You know, SAS, the government ain’t going away, and it’s going to keep regulating the gas and oil industries because most people don’t want to be poisoned. You can rail against government intervention all you want, but it’s never going to go away.

  9. BillT on Mon, 26th Nov 2012 3:08 am 

    “…Climate change carries enormous economic costs…”

    “F” the economy! What about the conditions that we will have to live with in the not too distant future. How long would NYC last if it was hit with 2 or 3 Sandys EVERY YEAR, and they were not Category 1 but Category 5?

    What is the ocean dies, taking most of the oxygen production with it? Ditto the water supplies that grows the food in the Us and other countries?

    SOS only sees his need for more and more money. He is addicted to it. He is willing to blame his mother for any road blocks placed in his way. Well, I personally hope that all fraking is shut down either by the people, the courts, or the failed economy. That oil can just stay where it is at. Ditto the natural gas.

  10. Gene on Mon, 26th Nov 2012 2:37 pm 

    Last comment by BillT quite good. The Idea we have to justify what needs to be done in terms of economics or what we perceive most unconscious people may respond to is too self limiting . Define the problems and Fix them .

  11. Stephen Kish on Mon, 26th Nov 2012 10:05 pm 

    I understand that our refineries on both coasts typically pay Brent prices for imported oil. Does anyone see X(YZ)L pipelines carrying tight oil and “Canoila” there?

  12. SOS on Wed, 28th Nov 2012 4:26 am 

    The crack-pot theory we are out of oil is reinforced by restrictive governemtent policies. What did the old timer get right anyway? Is the idea we might run out someday so compelling you ingnore facts? Your problems with energy are government related. In a positive business climate things would be different

    As it is dont expect much. Heck lets burn the libraries of Alexandria and Constantinople, full of bad ideas.

    EPA interference in fracking for political reasons, if successful, will necessitate more reliance on sources outside the USA. This will increase military engagement, cause conflct between cultures, increase human suffering, raise prices, create hunger and perpetuate human misery. These are all unintended of course but still crimes against humanity.

    This is what has happened since policies and politics in the USA started down this path under Jimmy Carter, Americas second worst president. Continue the same policies and the result will get worse.

  13. SOS on Wed, 28th Nov 2012 4:29 am 

    you have a hang over beery? You sound confused. Could you name a “subsidy” “given” to oil companies?

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