All Oil is NOT created equal

I continue to receive email from people who continue to believe that the Tar Sands of Canada and the U.S. Shale deposits hold salvation for the U.S. and its petroleum demand. Nothing could be further from the truth.

"Unconventional petroleum resources (Canada's tar sands, Venezuela's bitumen and U.S. oil shales) are very large and very misunderstood. All oil is not created equal. Although they total trillions of barrels in the aggregate, expanding unconventional production is expensive, technically arduous and slow. Because these resources can not be produced at high rates, they can do little to postpone the peak in global production. For example, at forecast 2015 rates of production, it will take more than a century to produce Canada's 175 billion barrels of tar sand reserves. (A financial analogy: Imagine having $100,000,000 in your IRA, but being forbidden to withdraw more than $100,000 per year. You are rich, sort of.) With tens of billions of investment dollars, Venezuela could expand its bitumen production, but Chavez is in no rush to do so, nor are the importing countries showing any indication of readiness to make the investments in refinery modifications which would be required to deal with the increased proportion of very heavy oil. As for oil shale, global production has never exceeded 25,000 barrels a day, has fallen by half since 1990, and now provides just 1/10,000th of global energy. Typical oil shales have the energy density of a baked potato. (In Colorado, Shell hopes to pull the sword from the stone using electricity: a dedicated 1,200 MW powerplant will be needed to produce 100,000 b/d, making this project the world's largest electricity consumer.) Other oft-heralded types of unconventional liquids, such as gas-to-liquids and coal-to-liquids, are very capital intensive and offer abysmal energy returns. Biofuels, particularly Brazilian ethanol, will make an important contribution but only regionally. A breakthrough in the production of cellulosic ethanol is unlikely to occur before oil production peaks." - Randy Udall, Energy Analyst, Co-Founder ASPO-USA
Jeremy Gilbert, Former Chief Petroleum Engineer, BP
Steve Andrews, Co-Founder ASPO-USA

The best analagy to describe our energy predicament I have seen follows here:

"Oil production can be best understood by comparison with something such as wood. Imagine an island where there is one carpenter. The R/P ratio basis of oil usage revolves around the assumption that oil production works like a woodpile in the carpenter's backyard. Whenever he needs woods, he walks out to the pile and takes however much he requires. If things get busy and he needs more wood, he simply takes more wood from the pile. There is always enough to satisfy his needs until that fateful day when he removes the last plank and it is then all gone. The only factor in its price is demand - if fewer people want wooden things, the carpenter lowers the price to stimulate demand. If he has plenty of work on, he can increase the price and get the benefit.

Comparing this with oil, if the world has 1,050 Gb of oil remaining and we use 27 Gb a year, then dividing one by the other means that we will be able to use 27 Gb of the woodpile for another 39 years. Then the yard will suddenly turn out to be empty.

But oil does not sit in one huge whole in the ground, constantly being pumped out. Rather an oil field is a set of wells of different sizes, with new wells being set up as old ones dry out. The R/P ratio takes the view that the oil has already been found and is sitting patiently in the backyard. In reality, it is more like woodland than a woodpile.

If we imagine instead that our carpenter had to chop down a tree every time he needed to make something, the problems become more evident. Trees vary in their size, proximity and quality. Initially our man would pick those that were large, good quality and nearby. As this was relatively easy, his prices could be kept low. But, as time went on, he would have to cut more trees of smaller sizes, travel further to find them and use wood of a lower standard. This extra work would take longer and naturally result in higher prices. Eventually, unless the trees were managed and replaced, he would find himself unable to find enough wood to satisfy his customers.

But couldn't he cut the trees quicker to keep production up? He certainly could employ someone to help him (which would be like drilling more wells) but that would result in depletion occurring more quickly, and the quicker you cut away the large and nearby trees, the quicker you have to resort to the small and distant ones. New technology can only help so much; no matter what circular saw or four-wheeled vehicle you have, there's always a certain minimum time needed to cut down and drag a tree to the workshop. Production still falls, the best you can do is change the angle of the slope on the chart. Any increase in production means a gentler initial decline and a steeper subsequent one.

Oil production works in a similar way with the important distinction that, unlike trees, we cannot replace the oil we use. It is as if every tree the carpenter cut down was gone forever." - The Wolf at the Door.com (Author's name unkown)

If, in your strategic planning you are counting on the world's Oil supply to grow in endless abundance, you need a new plan.



mentatt (at) yahoo (dot) com