May 18, 2012
Scraping the bottom of the barrelBack
Flow|Resources|Canada|United Kingdom|United States|Venezuela|USD|Conventional Crude Oil Production|Conventional Oil|Energy|Flow|Gas-to-liquids|Heavy Oil|Massive Surface Mining Opera|Mining|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|Environmental|Chris Skrebowski|Drilling|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 (150 word limit)
Other Dr Jeremy Wakeford News
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 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 road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
Integrated energy and chemical company Sasol has partnered with Unisa Graduate School of Business Leadership (SBL) professor and founder and CEO of PanAvest Partnership Dr Douglas Boateng to publish a series of books on executive supply chain management aimed at...
The World Wide Fund for Nature’s (WWF’s) 2014 Living Planet Index (LPI) indicates that there has been a 52% decline in vertebrate species since 1970. The Index tracked the trends of 10 000 discrete populations of over 3000 vertebrate species between 1970 and 2010.
Rwanda has joined a number of East African countries seeking to import electricity from Ethiopia as its demand grows. After it became apparent several generation project it is implementing will not come on stream early enough, now plans to import 400 MW from Ethiopia...
Metrorail’s first new passenger train will arrive in November next year, says Passenger Rail Agency of South Africa (PRASA) CEO Lucky Montana. “Next year we will be able to put our hands around the infrastructure and equipment we have been talking about for so long.”
The Competition Commission has launched an investigation into what it says are “price fixing, market division and collusive tendering in the market for the manufacture and supply of automotive components to original equipment manufacturers” (OEMs, or vehicle...
Next ArticleThe arithmetic of compound growth