Login



Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on April 7, 2012

Bookmark and Share

The last sip

The last sip thumbnail

A fever has swept over American energy observers in recent weeks as they compete to write the most optimistic story of impending energy independence. For example, see Clifford Krauss in the New York Times, Citigroup’s Ed Morse in the Wall Street Journal, and Raymond James’s outlook covered by Angel Gonzalez for Dow Jones, with perhaps the “Bonanza” theme song in the background.

Or if not a fever, then perhaps a mental illness, or heavy doses of good acid. Because as far as the data shows, none of these projections have any basis in reality.

The vogue suggestion is that North American oil production is about to surge and wipe out our 8.7 million barrels per day (mbpd) of oil imports, making us self-sufficient in oil by 2020. Most of this new oil is expected to come from fracked shales like the Bakken Formation in North Dakota, plus new drilling in the Gulf of Mexico and offshore California, an increase in Canadian tar sands production, and a miraculous reversal of the long production decline in Mexico.

Citigroup, under the leadership of Morse, probably holds the current record for the most outlandish projection. It suggests that North America will add the equivalent of 1.4 mbpd of new production every year between now and 2020, including 0.4 mbpd from tight oil. (That projection was then thoroughly debunked by Dave Summers at The Oil Drum.)

What these optimistic scenarios don’t tell you is what they really look like, and what they’ll really do to the U.S. in the long term.

Tight oil

The basis of this new euphoria, as I explained in February, appears to be the 0.6 mbpd or so of “tight oil” production from the Bakken. These wells typically produce a mere 80 to 100 barrels per day on average, to 150 barrels a day at the high end. Using the higher production figure, achieving 0.4 mbpd of new production every year through 2020 would require at least 20,000 new wells nationwide.

To see the effects of such drilling, consider this map of oil and gas wells in the Elm Coulee field of Montana, the first commercially successful portion of the Bakken Formation. Some 7 to 10 active oil wells per square mile dot this field.

 

Source: ESER

But that’s more representative of a formation with a single pay zone. Some U.S. shales actually overlap each other, so perhaps instead we should visualize the Denver-Julesberg basin, an area we’ve been drilling for roughly a century. The basin contains multiple layers of oil- and gas-bearing rocks, including the Niobrara Shale, which is anticipated to produce 250 thousand barrels per day by 2020. This map shows 20-25 producing wells per square mile near Platteville, Colorado.

 

Source: ESER

That, then, is the onshore portion of the new energy independence vision: A pincushion, where we draw 60 to 150 barrels per day from each hole. And we’ll have to keep drilling them like mad, because production from those wells drops sharply in the first year then tapers off to negligible levels after 15 years or so, and eventually becomes uneconomical.

 

Production profile of a typical Bakken well. Source: North Dakota Department of Mineral Resources

How far can tight oil from these shale formations take us? According to the current Energy Information Administration (EIA) survey of U.S. shale gas and shale oil (tight oil),  we have an estimated 24 billion barrels of undeveloped technically recoverable shale oil in the Lower 48. In 2011 the U.S. consumed 6.85 billion barrels of oil. So the big bonzana of shale oil amounts to about 3.5 years of demand.

Outer Continental Shelf

What about our offshore potential? The oil and gas industry has been agitating for greater access to the Outer Continental Shelf (OCS) since onshore oil production began declining in the 1970s. What if we opened all of it to drilling, without any restriction?

 

Source: U.S. Minerals Management Service [Click for larger version]

The 2011 assessment from the Bureau of Ocean Energy Management (BOEM) gives a mean estimate of 88.6 billion barrels for the entire OCS. (The data in this assessment varies only slightly from the 2006 data shown in the chart above.) Therefore, if we drilled the entire OCS, it might meet 13 years of demand. If the 95 percent probability estimate of 66.35 billion barrels is correct (and the P95 estimates usually are), then it would meet less than 10 years of demand.

ANWR

After the onshore tight oil in the Lower 48, the offshore oil of the OCS, and the Gulf of Mexico where oil production has modest growth potential, the only remaining serious prospect in America is the Arctic National Wildlife Refuge (ANWR), the target of the most contentious battle for new oil drilling in the last decade. We won’t know how much oil is there until we actually drill it, but according to the current estimate from the U.S. Geological Survey, the federal portions of ANWR might have 4.2 billion barrels under the P95 estimate (0.6 years of demand), or 7.7 billion barrels under the mean estimate (1.1 years of demand).

Oil shale

There is another unexploited resource in America known as oil shale, not to be confused with shale oil (tight oil). Oil shale is a dense, hard rock impregnated with kerogen, an “uncooked” form of hydrocarbon that nature hasn’t yet converted into actual oil. Oil cheerleaders like to talk about the trillion barrels or so of it that exists in America in places like the Green River Formation of Utah, but as yet no one has figured out how to produce it commercially (at a profit). So we may consider our prospects from oil shale to be a big fat zero.

All resources

For a final point of reference, there is the EIA’s 2010 assessment for the entire U.S. Although it uses 2008 data, I believe it is their current overall assessment. It shows 198 billion barrels of technically recoverable resources (not “proved reserves”) for the entire country, excluding areas where drilling is currently prohibited and areas within 50 miles of the Atlantic coast. By this assessment, the U.S. could meet 29 years of demand. Including “undiscovered technically recoverable resources“—like ANWR, OCS and tight oil—we might have enough to last about 41 years in total.

Finally, for reasons I have explained in previous columns, I do not believe that biofuels or tar sands can be significantly scaled up from current levels. The expectations for these fuels in the 2020 independence stories are simply not supported by the data.

The real prospects for U.S. oil production

So if all limits on drilling in the U.S. were removed, and if the estimates of undiscovered, unproved oil are correct, there is enough oil remaining on U.S. soil and in federal waters to meet demand for about 41 years, including 17 years’ worth from ANWR, OCS and tight oil shales.

But at what rate could we produce it?

We can’t know the production rates of OCS and ANWR until we produce them, but as I explained last month, exploiting those resources would be a long-term effort: probably 10 years to bring the first oil online, and 15 years or more to reach maximum output around 2 to 3 mbpd. By that time, it would be hardly noticeable as it compensated for the loss of oil production in the U.S. and elsewhere due to the depletion of mature fields.

Suppose we forget about all these niggling realities for a moment and just take the Citigroup projection at face value. Let’s assume that U.S. petroleum production climbs from 5.8 mbpd in 2011 to 10.2 mbpd by 2020 as they forecast. Let’s further assume that all limits on drilling are removed. What does this increased rate of production do to the lifespan of our resources?

It cuts it nearly in half.

At today’s production rate, we would exhaust all of the proved, inferred, and undiscovered oil in the U.S. in 133 years. But if we ramp up to Citigroup’s 10.2 mbpd rate and hold it there, we’d exhaust it in 76 years. Leaving out undiscovered resources, we would exhaust U.S. oil in 39 years at the current production rate, or in 22 years at the “energy independence” rate.

What “energy independence” really means

So now we know what the “energy independence” strategy really means.

If we take the status quo path, maintaining imports and overall production at current levels, but do not drill ANWR or OCS and do not increase tight oil production, we might have about 40 years to prepare for the day when U.S. oil production goes kaput. (Actually, it would be a gradually declining production rate over a longer time, but let’s not overcomplicate the math here.) If we maintain imports and overall production at current levels but gradually drill everything, and the remaining prospects lived up to expectations, we might have 133 years before the oil dried up.

Alternatively, if we take the “energy independence” path and turn all of America into a pincushion, open all the wilderness, accept all the risks of freshwater contamination from fracking and saltwater contamination from offshore spills, and improbably raise oil production to meet all of our oil demand, we might have 76 years of output left. If we drill everything and raise production to meet all of our liquid fuels demand (which is currently met by natural gas liquids and biofuels in addition to oil), we might have 41 years. And if we try to drill everything and meet all of our needs domestically, but the undiscovered oil turns out not to be there, or not to be commercially viable, then we could drain the dregs in just 22 years.

As veteran petroleum geologist Dr. Colin Campbell says of peak oil, “As any beer drinker knows, the glass starts full and ends empty and the faster you drink it the quicker it’s gone.”

All the talk of incipient energy independence is a mere pacifier and a distraction. It’s a way of avoiding the fact that at some point we must take action and prepare for the day when the oil is finally gone. Yet we know that it will take many decades to transition most of our infrastructure to electricity, and that if that electricity isn’t generated by renewables, it will be powered primarily by coal and natural gas. . . until they too run out.

The fact is, 40 years probably isn’t enough time to make that transition. As I discussed last November, we really needed to begin it 40 years ago. We will probably wind up drilling everything anyway because we’ll need the oil to rebuild our infrastructure, having started on the transition so late. But maximizing our production now to satisfy a short-term political need, or to temporarily plug a structural trade and budget deficit, would be stupid and counter-productive and foreshorten our already too-short window for transition.

Our remaining prospects aren’t a fresh full pint of beer, and drilling them is no solution to peak oil. If we were to achieve the energy independence production rate we might feel better for a decade or so, but it would come at the price of decades more of greatly diminished domestic production later on—at the very time when global oil exports are declining fastest and becoming intolerably expensive.

So that’s your real choice, America. You can slug down that last swallow and go home early, or you can linger awhile, sip it slowly, and stick around ’til closing time.

Smart Planet



14 Comments on "The last sip"

  1. DC on Sun, 8th Apr 2012 7:38 am 

    This highlights the most bizzare aspect of our energy prediciment. Everyones ‘solution’ is always, no exceptions, to drill everywhere and as fast as we can, so we might meet ‘demand’. When amerikans for example talk about getting ‘off’ foreign oil, the dont mean get off oil, just oil supplied by dirty heathen arabs. Apparently, oil itself is not the problem, just where it comes form. If its Canadian sorta-tar-oil, NP!, if its Mexican, thats ok too. Venuzualen…mmmm not so much, amerika hates them too but buys oil from them anyhow. Much as theyd like to launch an operation Enduring Freedom against them, there too busy stealing other peoples oil on the other side of the globe atm.

    In any event, the central idea is, dig up w/e oil we can, and as fast as we can, even if the economy is tanking and doesnt really need the oil. Because as we all know, the best way to meet an oil crises is dig it up and set fire to it just as fast as we can.

    Crisis Averted!

  2. BillT on Sun, 8th Apr 2012 8:05 am 

    Americans are guzzlers, not sippers. They will complain about the price of gas and then drive their SUV to the local Walmart for cheap Asian junk they don’t need and load up on junk food so they can watch the gladiators on their 48 inch flat screen TV and guzzle beer and increase their chances of dying young, or at least raising their medical bills later, when they think the ‘government’ should pay for it.

  3. Arthur on Sun, 8th Apr 2012 9:52 am 

    My biggest worry is how the american citizens are going to react to what will arguably will the largest cold turkey in history, namely the sudden death of industrial society. I am afraid, with Dresden and Hiroshima in mind, that the US gov will get a free hand to do whatever they like. You see, the american way of life is not negotiable. Yes, there was an America First movement in 1941 headed by Charles Lindbergh, yes there is a non-interventionist cluster now in the US with people like Ron Paul, Buchanan, Roberts, Raimondo, Rockwell, but I am afraid it is not enough.

  4. dsula on Sun, 8th Apr 2012 12:06 pm 

    >> My biggest worry is how the american citizens are going to react

    Yeah, europa on the oder hand (with a history of living peacefully with each other over centuries) does not run such danger.

  5. jaime on Sun, 8th Apr 2012 12:32 pm 

    people, die with out fear,look at the leaf on the tree,humans are not worth more.

  6. BillT on Sun, 8th Apr 2012 12:40 pm 

    dsula, Europe is the opening salvo in the war on the middle class, bleeding over into the Us, and coming soon to all developed countries. As goes Europe, so goes the rest of the West. Soon the blood in the streets will be more than that in the Middle East, or I am miss-reading all the clues. When Homeland Insecurity buys 250 million hollow point rounds, they are planning for massive trouble in the streets. Hollow points are for hunting wild animals where you want a quick kill, not a wounded bear or mountain lion.

    Heat weapons, mini tanks, sound bombs, flash bombs. You would think that the streets of America were in some war torn 3rd world country. Then we have FEMA concentration er…emergency camps all over the country to contain thousands of unhappy Americans that just woke up to reality.

    Yes, it is only just beginning. $5 gas. $6 gas. On up. Another million plus unemployed. More cuts to food stamps and unemployment. Then to Medicare and Medicaid. Then means testing for Social Security. Then another few million homes repossessed. Then millions of cars. Then… I wonder if 450 million rounds will be enough?

  7. Rick on Sun, 8th Apr 2012 4:11 pm 

    This is pure bullshit: making us self-sufficient in oil by 2020

  8. Kenz300 on Sun, 8th Apr 2012 6:55 pm 

    US demand is dropping at the same time US production is increasing reducing the amount of imports needed. That is a good thing.
    Energy efficiency is starting to take hold. People are getting out of those 9 mpg SUV’s and pickup trucks and into all those new 40+ mpg cars the auto makers are offering. Bring on the electric, flex-fuel, hybrid, CNG, LNG and hydrogen fueled vehicles. It is time to end the oil monopoly on transportation fuels.

  9. Arthur on Sun, 8th Apr 2012 8:16 pm 

    German largest online magazine Der Spiegel claims that America has a large trend of young people no longer aspiring for a drivers licence:

    http://www.spiegel.de/auto/aktuell/0,1518,826264,00.html

    Reason: these computer savvy young people see the web as an alternative means of having contact with others.

    Federal Highway Administration:
    2009: 20-34 year, 90% has license
    2010: 20-34 year, 84% has license

    I would like to add that it is likely that that rising cost of fuel will contribute to this trend.

  10. BillT on Mon, 9th Apr 2012 12:42 am 

    Arthur, yes, cost is contributing to that trend more than I-toys. When you don’t have a job (25%+ unemployment for the 18-25 age group) and their parents need that car for necessary trips only, you do not drive. It has little to do with the internet. The internet is just plugging a communication connection that was once done by telephone. Eventually, the internet will be too expensive and controlled like any other commodity. And, yes, someday it will disappear. It can only exist as long as those huge hardware complexes can be maintained, or there are no world wars. The internet will be the first to go if a war with China or Russia ever happens, and it may never return.

  11. James on Mon, 9th Apr 2012 2:29 am 

    And why have we been importing all of that oil from the Middle East if we knowingly had all of this oil in our continent?

  12. FloatFisher on Mon, 9th Apr 2012 5:37 am 

    @ James….so that there\d be oil left here when total global oil production begins to decline and that’s the phase of the oil curve we’re at now…

  13. Driller666 on Mon, 9th Apr 2012 2:24 pm 

    As JR Ewing on Dallas once said, “the world has been running out of oil since we drilled the first well”. OK, you have identified a problem, we have finite resources. Have you given any thought about a solution or is this all you got?

  14. Beery on Fri, 13th Apr 2012 10:46 am 

    Dsula wrote:

    “Yeah, europa on the oder hand (with a history of living peacefully with each other over centuries) does not run such danger.”

    Are you seriously suggesting that America has a history of living peacefully with other countries and peoples that compares well with Europe? Did you miss the parts of history class that covered Vietnam, Korea, the Spanish American War, the American Indian Wars, the War of 1812?

    Yeah, the USA is a REEEEEAAALLY peace-loving nation.