Neither Light nor Sweet: All About Crude

Playing in the background: Wim Mertens, "Lir"
Meters swum today: 1900 (should make 75 miles by Thursday)

Oil, that is. Black gold. Texas Tea. Couple weeks back I did a post on Matthew Simmons' book Twilight in the Desert, which is all about oil production in Saudi Arabia. Subsequently I picked up The Battle For Barrels at the library. This book, by economist Duncan Clarke who, I guess, is the "anti-Simmons", argues that the whole peak oil thing is a myth, there's tons of oil left, and that current high prices are a result of market manipulation, not actual scarcity. I got fascinated by the subject and started paying attention to the news (for a change) when Congress talked about such things as stopping deposits to the Strategic Petroleum Reserve, asking the Saudis to jack up production, and other harebrained ideas to lower gas prices here in the US.

As it happens, I have a couple of pretty sharp petroleum geologists in my immediate family--my Uncle Bob and my cousin Kyle. (What can I say, we're all dangerously overeducated.) So I posed a couple of questions to them about all this and this is what they had to say. I found it all fascinating (and a bit sobering).

My question: Who's right, Simmons or Clarke?

My Uncle Bob: Of course [Simmons] is right. King Hubbert was a Shell Geologist back in the 50's when he presented his peak oil theory for the US. He predicted that the US production (oil produced in the US) would peak in the early 70's and drop off from there. His prediction was almost right on. Incidently, his prediction of peak oil in the US roughly coincides with our first great oil shortage in the early 70's when the arabs first restricted oil sales to the U.S. [Simmons] and others have made similar predictions about when peak oil production would occur world wide and essentially we are there or maybe a little past the peak. Hence the world, with emergent economies, is paying a lot more for a commodity being produced in diminishing quantities. Altho the press never covers it, the major oil companies have been saying for decades, that we need to conserve our resource with better fuel economy and alternative sources of energy. The problem is.....who is going to pay for the research. Hillary [Clinton] wants the oil companies to pay, but most geoscientists say that oil companies would be better off using their high profits to explore for, and produce the energy we need from unconventional sources of oil, like deep offshore technology, oil shales, tight gas sands, etc. and let other companies and government entities come up with alternative sources of energy. Oil companies are good at finding oil, so let them find it. Right now oil companies are making high profilts, but in the recent past, this business was not profitable at all, as I can personally attest to. After passing on some of the profits to stock holders, oil companies will use those excess profits to develop new and improved technology for locating oil fields and improving recovery techniques. Drilling in the deep offshore areas, requires huge risks on the part of oil companies and they should be rewarded with huge profits when they are successful. This country has basically been built by cheap energy supplied by the oil companies, most of which have been simply providing what the country wants--cheap energy. Well now it's not so easy to do and there is huge demand from emergent nations like India and China. Oil companies seem to have a reputation for greed and environmental destruction, but I can tell you that my experience with people in the oil field, is that they are very concerned with their environmental foot print. Most oil companies will develop an oil resource with the minimal amount of disturbance to the environment. The good thing about oil development is that after producing for 20 to 100 years, most oil fields that have reached the end of their productive life can be restored to almost pristine conditions. I have seen this done many times in ND.

My cousin Kyle: Isn't Mathew Simmons is the author of Twilight in the Desert?? Anyway, I've read this book and it is well done and the concepts are sound and unbiased. My Dad has offered a more complete composition, but here's how I look at it.... year in and year out the daily percentage of non-conventional (harder to produce oils) to conventional (easy to produce) is increasing thru time. Non-conventional oils now represent nearly 20% of global production and global production has remained flat 80-85 mmbbl/day for quite some time.... symptoms of peak oil. OPEC has lost control of pricing as the gap between demand and supply is dangerously narrow. Any disruption in oil production creates another record price which is another symptom of Peak Oil. And like my dad mentioned peak oil is not a myth.... it is reality and was predicted to occur in the US in 1970.... and it happened. This concept can also be applied to the globe as well, but the error bars are much larger. Have not read Clarke..... no comment.

(Frankly, I can't comment on Clarke yet either. I haven't finished his book.

My question: What are the odds of us finding supergiant oil fields in sub-Saharan Africa that are big enough to replace Ghawar?

My uncle Bob: Maybe offshore Africa, but not onshore. Also, if you think the Middle East is unstable, Africa is really bad, and oil companies are reluctant to find oil giants, that some dictator (like Hugo Chavez) is going to confiscate after billions are spent to develop the oil fields.

(Jen admits that would kind of suck.)

My question: Is halting oil deposits to the Strategic Petroleum Reserve going to make any difference whatsoever in gas prices?

My Uncle Bob: Maybe a little bit...only in the short run. This idea is basically a political gesture for the voters.

(That's kind of what I thought.)

My question: Is it true that most Saudi oil doesn't become gasoline anyway because it's the wrong kind of oil?

My Uncle Bob: I'm not sure, but diesel fuel, jet fuel, chemicals, plastics etc. are all in high demand and come from crude oil. By the way about 60%+ of all crude consumed in the US is now imported.

My question: Is it further true that "all that oil" in the ALaska National Wildlife Refuge would in fact power the United States for, oh, say, fifty-eight days?

My cousin Kyle: This one of the great mysteries in our industry. I think from national security point of view we should explore ANWR to find out what's there. Remember exploring and developing are two very different things.... it would be good to know what's there. Google Marsh Creek Anticline and the Niguanik (sp?) High and see what the fuss is about.

My Uncle Bob: I have heard that argument. It is very controversial how much oil is actually there, and we won't know exactly until it gets drilled. The fact is that we need oil from lots of big, giant oil fields if we are to maintain our standard of living in this country. If there is 15 Billion barrels in ANWR, it will produce for 50 years +. Oil was discovered at Prudhoe Bay in the late 60's, and it it still producing, and it is a very important part of our oil and gas reserves in this country, so it makes sense that the oil and gas in ANWR could also be a long term resource, if it ever gets drilled. It is now doubtful that this will ever happen without a massive outcry from the general US public (polar bear problem now you know). Oil companies have basically given up the fight to drill ANWR, because it has been too frustrating.

What do you guys see as a long-term solution to the fading of cheap oil?

My cousin Kyle:

Near Term:

1) Rationing. It's been done before... it's not fun, but it works and it will have a drag on the economy. However, the trouble with this concept is that for every barrel of oil we would conserve China and India would burn it up. Right now conservation is a pipedream. China is subsidizing fuel to keep their economy rolling. They have lots of money and I don't think they will stop this program anytime soon. The net effect is no reduction in price, but we would learn to deal with less.... which is a good thing.

2) Nukes.... a no brainier. Burning natural gas to create electricity is tantamount to a sin, IMO.

Long Term:

1) Again Nukes. Electricity will be our savoir and nukes are the way to do it. The rest of the world has embraced nukes..... why not us??

2) Continued oil exploration and production until it becomes cost prohibitive to produce and consume. Until a technology comes along to displace the advantages of the internal combustion engine (which from an engineering POV is extremely difficult to do), we will be using HC fuels to some degree for 3 to 4 generations.

3) Coal liquification / gasification. This is a process of "cracking" coal into either gas or liquid. The Nazi war machine was largely fueled by this technique during the last few years of WWII and it was used by South Africa during the embargo years to sustain its oil supply. Another upside is these products can easily be "transported" in our existing oil and gas transportation system unlike biofuels and ethanol.... which are highly corrosive to pipes and production facilities.

4) Re-zoning suburban development. Allow for village centers of commerce and trade to be built and decentralize shopping so people can walk or drive shorter distances or use public transportation..... Kill the big box stores and shopping malls.

My Uncle Bob: There are large undrilled geologic structures off the coast of Florida, the east coast of the US, and also off the west coast of the US, which are now protected and are off limits for oil development. Even if we started drilling in these areas tomorrow, it would be years before they could have a significant impact on lowering the demand for imported oil. By the way, Cuba is alreading drilling off the coast of Florida, so we might as well drill there too.

One thing all the geoscientists agree on. Oil and gas, as well as coal will play a huge part in our energy picture over the next 200 years, even with the developement of alternative fuels. So far the development of alternative fuels and renewable energy sources has not been overly successful. Raising crops for fuel has turned out to be a world disaster, causing food prices to skyrocket and increasing the threat of mass starvation in many 3rd world countries. Wind and solar energy has not panned out so well either, as it has certain economic drawbacks. These sources of energy have been highly subsidized by the government and are not reliable sources as of now. One windmill produces about 1 megawatt of power operating at high efficiency and it would take more than 500 windmills to equal a 500 megawatt coal burning power plant. The US is known as the Saudi Arabia for coal resources, however even though we have made immense improvement in clean burning, coal technology, this source of energy will not be utilized like it could be with all the bad press about global warming, which many geoscientists see as a naturally occuring event which has transpired thousands of times over the geologic past, but that's another issue altogether.

Also, I did not address the fact that much of the high price right now can be partly attributed to mass speculation by Wall Street traders and also by the falling US dollar. Where will this all end? Who knows! I gave up trying to predict the price of oil years ago, but we may have high prices for quite a while, and I think our economy will suffer quite a bit in the short run. Hopefully the politicians and the voters will come to grips with the real questions of energy supplies and not blame all of our problems with energy and global warming on the oil companies. Its seems no one addresses the real problem........which is the world population explosion and the massive problems associated with it.

In closing, this again from my Uncle Bob: I'm impressed that you are actually investigating why we have high oil prices. I wish the members of congress would do the same thing. The average voter simply blames the oil companies for all of our energy short falls and can't understand why we still can't have cheap gas anymore.

Well, I sort of grasp it. It's a big complicated issue to which there's no pat political platitude of a solution. No wonder everybody's so upset.

Gas at the local Quickie Mart was $3.89 yesterday. Thank God we left California.