I was absolutely incredulous when I first heard the specifics of Mitt Romney’s (R – 1955) energy policy. In a nut shell, he pledges “North American” energy independence in just 8 years. How? Entirely via supply-side reforms of the fossil fuels industry. Note there is not a single mention of managing the demand side, even by way of something as simple and relatively unintrusive as improved CAFE standards. But with all of these shale oil and tar sands resources, surely we can drill our way to oil prosperity, right? I’m not so sure. (And I’m even going to ignore the point that stopping imports from countries not named Mexico or Canada will not decouple us from global market prices. Canada is a net exporter, and gas is comparable in price to the US.) Let us first establish some background. This chart is busy, but summarizes the state of energy consumption quite well. As you can see, more than 1/3rd of all energy used in the US comes from petroleum, and virtually all of that goes into transportation. You can also see that coal and natural gas provide the most of the rest of our energy. These things are not likely to change in the short run; there is a lot of infrastructure in place. But you can also see how much energy gets “rejected”. This energy is essentially wasted, often as heat, and not put to productive use. So it is clear that inefficiencies are a big problem. What many people may not know is that the United States, despite peaking in domestic oil production in 1970, is still the #3 producer of oil in the world. In fact, we are not far behind Saudi Arabia and Russia. Unfortunately, we are the #1 consumer in the worldwith more than  twice the next closest country (China). About half of our oil comes from imports. (Note that these numbers are a composite of crude oil and natural gas liquids.)

Now, let’s consider that if nothing else changed, a 1% population growth (roughly what the US growth rate is) would mean that US energy demands would double in just 70 years. China’s much slower population growth rate – about 0.5% – is offset by their rapid industrialization. India is the worst of both worlds. So energy demand should continue to rise exponentially. Since Romney’s plan is about North America (assuming Canada and Mexico “buy in”), we can assume that the energy demand for the continent should rise from about 23 million barrels per day (Mbbl/d) to roughly 25 Mbbl/d. Romney’s plan calls for a total production level of 28 Mbbl/d. Currently, total North American production is 16.6 Mbbl/d. That is a growth in production of 70%. That is a remarkable figure, especially since US conventional crude oil production peaked in 1970… at roughly 9.6 Mbbl/d. Now, nearly half of our current oil production is already from non-conventional sources (largely natural gas liquids). The gap here is not going to be bridged with cheap, easy to extract crude. No, it’s going to be met (if at all) by hydrocarbons gained by fracking, and processing of tar sands. Two questions naturally arise. First – can we do it? And second – will it reduce gas prices, as Romney implies? Interestingly enough, these two questions are inextricably linked. The lower the price of gas (which in the long run tracks crude oil), the less likely we can actually meet these production goals. Why? Because this oil is vastly more expensive to extract, and ironically enough, the more expensive oil is, the more expensive oil like tar sands are to extract and refine because it takes energy to extract oil. But the expense of extracting oil from fracking and tar sands operations is so high that it isn’t economically feasible at production volumes at less than $100/bbl.

You can see the interaction of these issues when you look at the history of oil production in graphical form. Let’s start with a baseline we should all be familiar with: real gas prices. Unfortunately, the introduction of unleaded gasoline doesn’t permit an apples-to-apples comparison that includes the oil shocks of the 1970s, but you can clearly see that high gas prices were a real issue in the early 80s, when we were importing just a small percentage of our total consumption. After about 15 years of stable prices, gasoline started to climb rapidly around the turn of the century, before crashing during the 2008 recession, and then immediately climbing again. This tracks very very closely with long-term oil price trends; oil has increased about 600% in real dollars between 1998 and today.

Next, let’s look at the number of wells being drilled.

A pattern that, again, roughly tracks oil prices can be seen. One should note that oil production had been falling during the 1980s, despite all of these exploratory and developmental wells. Oil discovery had peaked in the 1930s, but people were looking furiously. And then OPEC decided to peg production at a level to ensure stable prices. Again, you can see the trend turn upwards around 1998-2000, and then crash during the 2008 recession, and then return to it’s previous rate of growth. What about average well depth?

You can see a long-term trend towards drilling deeper. Why? The easy to extract oil is gone. We have to drill deeper to get at oil. Now we can start combining a few factors. Let us look at footage, which is a product of depth and number of wells.

Hmm. Just like we were in the 80s, we’re drilling a LOT. A lot of total footage, but spread over fewer wells. So, what does that mean for the cost of drilling?

Holy smokes. (Note – the last three graphs don’t have information past 2008 yet. No blaming this on Obama.) Some of this can probably be attributed to regulatory effects, but it is important to note that oil spills make the news, and oil companies actually do quite a bit of voluntary policing on this front to avoid the bad press (especially compared to mining companies, for example). It would seem to be a reasonable conclusion that it is getting more expensive because a) we have run out of cheap oil, and b) it takes more energy to extract and produce the oil we are producing, which is a vicious feedback loop.

OK, so I think we’ve answered the question about the cost. Barring economic collapse, gas prices aren’t dipping below $2/gallon again. But what about capacity? Mexico appears to be past it’s peak production. They are not likely a factor, in my opinion. That leaves untapped domestic oil, including ANWR, liquid condensates, shale oil (officially “tight oil”, oil contained in shale formations), and tar sands.

ANWR is estimated at 7.7B barrels of recoverable oil (which, interestingly, was not economically feasible to recover in 1998). At current consumption rates, that is a little over 1 year of oil. Not going to be a significant factor in doubling our domestic production.

Liquid condensates – the liquid hydrocarbons that are associated with things such as shale gas – have seen an uptick recently and shale gas exploitation has increased, but it seems unlikely that this source will completely revolutionize domestic oil production.

Tight oil – commonly called “shale oil” – is oil locked in shale formations, much like shale gas, and is extracted in a method similar to the fracking for natural gas. Current estimates are that production will ramp up to a maximum of 1.33 million barrels by 2029. Only about 15% of our current production levels. Tight oil is not to be confused with “oil shale”. Oil shale is kerogen, an oil precursor, which much be heavily (and expensively) processed to produce oil. Current estimates are that 2 trillion barrels of kerogen exist in the US – more than all of conventional oil that exists in the the entire world – but only a small fraction of that is hypothetically recoverable. It is incredibly expensive to process, and it is hypothesized that in-situ processing might burn one barrel of oil to produce 2 barrels of kerogen. Total global production is just 17,000 barrels per day. “Oil shale” is not going to make an impact in 8 years, if ever.

So our hopes rest on tar sands. 70% of the world’s bitumenous sand exists in Canada, with a total of 176.8 billion recoverable barrels. There are another 32B barrels in Utah. At Romney’s projected 2020 production rate, the sands would be completely consumed in 17 years. However, the Canadian government believes that they can only push production to 3 Mbbl/d by 2020 – only about 11% of the goal set by Romney. Additionally, the environmental costs are enormous, with a greater carbon emission due to processing, and enormous water use. Additionally, you only get about 5 barrels of usable oil out of the process for one barrel of energy input. In comparison, you get about 35 barrels of conventional oil, or an equivalent 80 barrels of coal energy (100 for hydro) of energy return for energy invested.

Bottom line, none of the resources available to us will allow us to meet 100% of North America’s energy demands only by manipulating the supply side of the equation. There is no technological replacement for oil on the horizon as a liquid fuel for automobiles and other transportation. This goal is flatly unobtainable. And the fact that we have to look at such expensive (economically and energy input) sources of energy to attempt to just meet our demand is a big warning sign that trouble is over the horizon if we don’t change our consumption patterns.

Evangelize!
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  • DMoore

    We were at this point 40 years ago and we failed to develop alternative fuels energy sources, public transit networks, and higher mileage standards. Had we done that then we wouldn’t even be talking about this. Romney exudes the mindset of the 50’s, the “see the world today in your Chevrolet” happy-go-lucky days of endless consumerism and consumption of fossil fuels because that is his experience. He’s always been a rich guy and $4 a gallon for gas is nothing to him.

  • Steven Marusich

    Steve,
    After storm,can you imagine what would happen if all East coast states had majority of environmentally clean electricity from solar and wind?They could use many clean candles or dirty small generators.Naturally, looking at the pictures we would have lot of wood for cooking outside.

  • http://www.plunderbund.com/ Brian

    You are absolutely correct. Carter had the courage to stand up and say something really unpopular – but right – and the American people said “screw you old man, we’re going with this ‘Morning in America’ fellow!” Instead of addressing the problem when we first noticed it, we let OPEC paper over it with an oil glut, and continued to invest heavily in infrastructure that REQUIRES cheap oil.

  • jeremyboak

    A technical note with respect to oil shale and shale oil. For more than one hundred years, shale oil has referred to the product of pyrolysis of oil shale, an organic rich sedimentary rock containing large amounts of kerogen. The Bakken Formation and its like could be called oil-bearing shale in recognition of this priority, and the product might be called shale-hosted oil. There does need to be a term for the rock and the product, and “tight oil” does not make it.

    When properly processed, oil shale can produce synthetic oil whose quality depends on the process, but can be as good as light crudes (API>35). Current estimates of price required to make a profit are in the range of $40-80/barrel. Current production of oil shale is greater than 20,000 barrels per day, possibly 25,000 (depending on whether a new Estonian retort went on production this week or not). U. S. resources are 4.2 trillion barrels in Colorado, Utah and Wyoming alone, although likely technically recoverable resources could be as little as 10% – a mere 400 billion barrels. That is still a lot of oil. Your energy return estimates are high for conventional oil and low for oil sands. Actual analyses (rather than hypotheses) suggest an energy return for oil shale of 3.5-5 to one, although some technology providers suggest better values are achievable.

    No one energy source is capable of delivering independence on its own. Even if it is only one year’s reserves, ANWR oil, which was producible as far back as the 1980s, would provide a significant improvement in our 24 billion barrels of reserves, and I for one would be happy to take a 1% royalty on it. Our energy future will be complex, and should involve all options. I am fond of an Arab proverb that says, “If you think the problem will be solved in your lifetime, you haven’t taken on a big enough challenge.” The energy transition to the future, which I hope to see well on its way by the time I check out, does not suffer from this shortfall. It will require energetic investment in a variety of energy sources, with care and concern for the carbon, water and land impacts of each source.

    It is not unrealistic to discuss North American energy independence, a laudable goal if it includes a wide range of energy options and thoughtful collaboration with our neighbors north and south. Achieving it would have profound implications for the global economic structure, even in a global oil (and potentially gas) market. I think the author is far too pessimistic about the potential of these resources. It is not clear it was any easier to get from zero to one million barrels per day in 65 years than it will be to maintain or grow our current production. We have come a long way from the hand dug well of Colonel Drake, and it is premature to dismiss the ability of innovation to achieve such a goal. But the author is right about one thing – it won’t be easy.

  • Red Rover

    …which is why we need to get solar, wind, and hydro alternatives up and running quickly.

  • http://www.plunderbund.com/ Brian

    Thanks for your comment, Jeremy.

    Am I pessimistic? Sure am. Overly so? Maybe, but I also think it irresponsible to make plans with the expectation that some future technology will pan out, and not have a contingency in case it doesn’t. “tight oil” is currently processed in such relatively small volumes that I think it prudent to not explicitly assume that we’ll be able to ramp that up to volumes that will offset declining traditional oil fields and accommodate exponential growth curves.

    Agree that “tight oil” is not a particularly enlightening term. The entire topic is technical enough that the confusion between “oil shale” and “shale oil” is enough to make normal people go crosseyed.

    It seems clear that Romney’s plan is contingent on oil sands.

    I’ve neglected to address coal and natural gas because, frankly, there’s no immediate concerns in those areas. Yes, fracking for “shale gas” may have some environmental concerns, but we have quite a bit of gas and it’s pretty cheap. Not true for oil. And, right now, there’s no technological substitute for oil, while for most of our uses we can freely substitute nuclear, coal, and NG (because the end use is electric). But you can’t run a car on coal.

    I will say this – I don’t doubt for a minute that we will eventually extract all of this oil (provided EROEI and economic costs of doing so can be met). The stuff in sand, the stuff embedded in shale, the stuff in ANWR. We will, eventually, mine all of it – because we’ll need the energy. My *hope* is that we do so in as environmentally friendly a way as possible, because environmental degradation has real economic costs, not to mention more serious consequences.

    But exponential growth combined with a finite planet is not sustainable. All technological advances do is act to reduce the instantaneous resource consumption rates. As long as populations and economies are growing, rates of consumption will grow. This is, I would hope everyone would agree, a very serious long-term problem. I would posit that it isn’t as “long term” as we might think. The amazing thing about exponential growth is that the future arrives faster every single day.

  • jeremyboak

    Brian

    I very much enjoyed your reply, and I have been a fan of the Livermore energy balance diagrams for a long time, especially their clarification of the waste heat issue. You are also right about the terminology problem. I have a figure I would gladly email that I use to explain the relationship of oil shale, oil-bearing shale, and gas shale, because I am not sure it has to be as confusing as it seems to be.

    The oil shale resource is one I have sometimes wondered if we will actually use up before we successfully transition to the renewable side, as the growth rate is currently quite modest. In some respects, the future of energy technology remains uncertain for nearly all energy options. For coal and other hydrocarbons it is the carbon issue, for renewables it is simply the issue of whether it can truly replace our other energy needs. If wind power were truly the answer, we would not have companies still asking for a production tax credit except on the basis that all businesses wish to have certain tax advantages. Our real addiction is to energy; we settle for the cheapest street fix available; and we burglarize whatever we need to to cover the cost.

    It seems to me that exponential growth is the most abused concept in mathematics these days (not by you, as far as I can tell). It applies to 0.5% growth as well as to 40% growth, and they both runaway in the end. Not only that, but exponential growth is probably more common than linear growth in the world. However, most such exponential growth curves have hidden limits that begin to show up somewhere down the road.

    It is wise to look out to the long term future, but unwise to expect politicians to do so effectively. We must find some other mechanism to drive the longer term needs.

  • http://www.plunderbund.com/ Brian

    Jeremy,

    I would love that figure. Please send it to brian at plunderbund.com

    I suspect we are in fairly large agreement, but may differ on our optimism levels. :) Personally, I’d rather see a managed end to growth rather than a forced one. There is, at some point, a cap to what can be accomplished on this planet. If we’re lucky, we’ll settle up gently against that cap, but I suspect we’ll overshoot capacity in one (or several) ways, which will result in a very painful forced readjustment.

    I just had an amusingly absurd image of every car on the road towing a coal tender, with a coal man shoveling the stuff into the boiler of steam power automobiles. I think it’s time to call it a day. :D

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