May 18, 2012
Scraping the bottom of the barrelBack
Canada|United Kingdom|United States|Venezuela|USD|Conventional Crude Oil Production|Conventional Oil|Gas-to-liquids|Heavy Oil|Massive Surface Mining Opera|Namely Heavy Oil|Natural Gas|Natural Gas Liquids|Oil|Oil Casts|Oil Sands|Oil Shale|Peak Oil|Shale Oil|Synthetic Oil|Unconventional Oil|Unconventional Oil Resources|Unconventional Oil Sources|Ventional Crude Oil Discoveries|Yearly World Oil Production|Chris Skrebowski|Alberta|BIOFUELS|Fracturing
© Reuse this
Data from the US Energy Information Administration show that conventional crude oil production – oil from wells accessed using typical drilling techniques – has been essen- tially flat at around 74-million barrels per day (mbpd) since 2005. Looking at the history of con- ventional crude oil discoveries, this is not surprising – they peaked in the mid-1960s and have been on a declining trend ever since.
Since 2005, all liquid fuels production – which includes natural gas liquids, biofuels, gas-to-liquids and unconventional oil – has been growing much more slowly than in previous decades – at less than 1% a year – while demand in the developing world has burgeoned. The trillion-dollar question is: For how much longer can growth in these unconventional sources of oil offset the declining production from existing conventional fields, estimated by the International Energy Agency to be depleting at about 6.5% each year?
There are three types of unconventional oil resources, namely heavy oil, oil sands and oil shale. Heavy oil, which is mostly located in Venezuela’s Orinoco belt, is denser and more viscous than conventional oil and requires special extraction and refining techniques. Oil or tar sands – the bulk of which is located in Canada’s Alberta province – consist of sandstone impregnated with heavy oil. Oil shale, found predominantly in the western US, is oil trapped in shale rock.
Technically, recoverable resource estimates for unconventional oil vary widely but are generally very large – possibly several times the roughly one- trillion barrels of oil consumed globally to date. But, economically, recoverable reserves are substantially smaller than total geological resources.
The methods involved in extracting oil from unconventional sources are quite different from those used to extract conventional oil. In the case of shale oil, extraction involves similar hydraulic fracturing processes used to extract natural gas from shale. Oil sands production is a massive surface mining opera- tion, followed by extensive use of natural gas to produce synthetic oil.
The hugely capital-intensive nature of these production processes means that marginal production costs – typically estimated at between $80/bl and $100/bl – are much higher than those of conventional oil. As the world shifts increasingly from conventional to unconventional oil sources, the floor under market oil prices will continue to rise.
The higher production costs reflect the most crucial energy variable of all: the energy return on investment (EROI) ratio, which measures the energy delivered by a process relative to the energy required to find, extract and process the energy resource. Experts estimate the EROI for oil shale and oil sands at about 4:1 at best, compared with a global average for conventional oil of about 18:1 today, and nearly 100:1 in the 1930s.
A further downside to unconventional oil is that its environmental impacts are significantly worse than those of regular oil. The freshwater demands are much greater and the carbon dioxide emissions can be up to twice as high for each barrel of oil. Fracking and oil sands production also pollute freshwater sources. These environmental costs are largely externalised, that is, the public pays for it indirectly.
Returning to peak oil – the key issue is the flow rate, that is, how much oil can be brought to market in a given year. There are economic and physical constraints on how much oil can be extracted from low-EROI, high-cost unconventional oil reserves, arising from the highly capital-intensive nature of this business.
Several peer-reviewed articles in academic journals have shown that the depletion of older, conventional-oil fields will soon outpace the gains from new unconventional oil sources. Chris Skrebowski, consultant editor of the UK-based Petroleum Review and director of Peak Oil Con- sulting, maintains a large database of current and forthcoming oil pro- jects. His latest forecast is that global spare oil capacity will be exhausted by 2015. After that, we are looking at a long downhill slide for total world liquid fuel production.
So, while there will be plenty of investment in unconventional oil sources, it will not materially change the peak oil phenomenon – at best, it will delay the date of the global peak of all liquids by a few years. And the switch to unconventional oil is setting a triple-digit floor to international oil prices, thereby putting brakes on global economic growth.
The bottom line is that the peak oil challenge has not gone away. If we do not intentionally wean our civilisation off oil quickly, we face increasingly severe economic shocks as well as intensifying climate destabilisation and environmental degradation as we burn dirtier fuels.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines
Other Dr Jeremy Wakeford News
Article contains comments
Recent Research Reports
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 Report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
This Week's Magazine
Creamer Media’s Electricity 2014 report provides insight into South Africa’s electricity generation, exploring the issues of State-owned power utility Eskom's generated power, coal supplies, electricity tariffs and demand-focused initiatives, as well as the...
This month’s report includes details of junior miner Papillon Resources’ mining permit for its flagship Fekola gold project, in Mali; the Waterberg Coal Company’s feasibility on the development of an opencast mine, in Limpopo, to produce ten-million tonnes a...
A structured approach, wherein managers personally engage at each level of the project, is necessary to mitigate delays to the workflow on mega construction projects, says State-owned Eskom Kusile power station projects GM Abram Masango. The 4 800 MW Kusile power...
Construction of transmission lines to evacuate power from a regional hydroelectric project in East Africa, which was hanging on the balance following the withdrawal of financing by key partners, is now back on track. After six months of uncertainty, the African...
Three Memorandums of Understanding (MoUs) were signed between South African and Malaysian companies at the Malaysian High Commission in Pretoria on Friday. These MoUs are part of the indirect offsets programme South Africa is providing in return for Malaysia’s...
Next ArticleThe oil price roller coaster