Oil Shale: Finally a Bride?

The past few years has seen an explosion in the production of shale gas. The recently released World Energy Outlook 2012 predicts that the US will replace Saudi Arabia as the world's largest producer of oil by 2020 as a result of a dramatic increase in production from an unconventional source: shale oil.

How plausible is this? Lets begin with the facts. First, there is a tremendous amount of oil locked up in US shale, particularly in Colorado. With 'known' reserves of approximately 600 billion barrels of oil equivalent and estimated potential of 1.8 trillion bbl, this resource is the American version of Canada's oil sands -- an unconventional source of petroleum that has a long history of being a bridesmaid, but never a bride. A popular saying in the Colorado industry captures this nicely: “Oil shale is the fuel of the future, and always will be.” But, as the tar sands have shown, changes in the economics of the industry coupled with technological developments can foster large scale production from previously inaccessible sources.

Second, the projection is based on expectations about both price and technology. Significantly, a recent survey of petroleum economists showed little consensus about future prices. The survey revealed two distinct camps -- those who think prices will remain high or increase and those who think they will fall substantially. Their take on prices is largely tied to their expectations about the impact of shale oil on the global market. One camp argues that the upside from shale oil supplies will be more than enough to meet demand growth. The other disputes that, saying the likely impact from shale is being exaggerated.

The role of technology is equally contentious. Some geologists point to the role of two technologies that have been central to the development of shale gas: hydraulic fracturing and horizontal drilling. Others emphasize the technologies present at Shell's Mahogany Ridge Project; a new, working, but small scale, oil shale demonstration technology that produced 1400 barrels of oil without mining. The traditional approach to oil shale -- which led to the bridesmaid label -- involved 'retorting,' a process that required mining the shale, hauling it to a processing facility that crushed the rock into small chunks, then extracted a petroleum substance called kerogen, then upgraded the kerogen through a process of hydrogenation (which requires lots of water) and refined it into gasoline or jet fuel. Here is a description of the Mahogany Ridge process from Shell's Terry O'Connor:

“Most of the petroleum products we consume today are derived from conventional oil fields that produce oil and gas that have been naturally matured in the subsurface by being subjected to heat and pressure over very long periods of time. In general terms, the In-situ Conversion Process (ICP) accelerates this natural process of oil and gas maturation by literally tens of millions of years. This is accomplished by slow sub-surface heating of petroleum source rock containing kerogen, the precursor to oil and gas. This acceleration of natural processes is achieved by drilling holes into the resource, inserting electric resistance heaters into those heater holes and heating the subsurface to around 650-700F, over a 3 to 4 year period.

“During this time, very dense oil and gas is expelled from the kerogen and undergoes a series of changes. These changes include the shearing of lighter components from the dense carbon compounds, concentration of available hydrogen into these lighter compounds, and changing of phase of those lighter, more hydrogen rich compounds from liquid to gas. In gaseous phase, these lighter fractions are now far more mobile and can move in the subsurface through existing or induced fractures to conventional producing wells from which they are brought to the surface. The process results in the production of about 65 to 70% of the original “carbon” in place in the subsurface.

“The ICP process is clearly energy-intensive, as its driving force is the injection of heat into the subsurface. However, for each unit of energy used to generate power to provide heat for the ICP process, when calculated on a life cycle basis, about 3.5 units of energy are produced and treated for sales to the consumer market. This energy efficiency compares favorably with many conventional heavy oil fields that for decades have used steam injection to help coax more oil out of the reservoir. The produced hydrocarbon mix is very different from traditional crude oils. It is much lighter and contains almost no heavy ends.

“However, because the ICP process occurs below ground, special care must be taken to keep the products of the process from escaping into groundwater flows. Shell has adapted a long recognized and established mining and construction ice wall technology to isolate the active ICP area and thus accomplish these objectives and to safe guard the environment. For years, freezing of groundwater to form a subsurface ice barrier has been used to isolate areas being tunneled and to reduce natural water flows into mines. Shell has successfully tested the freezing technology and determined that the development of a freeze wall prevents the loss of contaminants from the heated zone.”

It may seem, as O’Conner said, counter-intuitive to freeze the water around a shale deposit, and then heat up the contents within the deposit. It’s energy-intensive. And it’s a lot of work. What’s more, there’s no proof yet it can work on a commercial scale.

Yet both technologies, the freeze wall and the heating of shale, have been proven in the field to work. The freeze wall was used most recently in Boston’s Big Dig project. It was also used to prevent ground water from seeping into the salt caverns at the Strategic Petroleum reserve in Weeks Island, LA.

In short, the individual 'pieces' of a working approach have been demonstrated, but their viability as a systemic whole, particularly on a commercial scale, remain unproven.

Third, a number of other factors have to be taken into account. The energy content of oil shale varies tremendously from region to region. Colorado shale is, by far, the most concentrated and, hence, most attractive. But, the process is both energy and water intensive, and water is at a premium in Colorado. Moreover, 72% of known US oil shale reserves are on government land. This is a fact that cuts both ways. On the one hand, this provides an economic lure; development of the lands could provide a significant revenue stream. On the other, as the case of drilling in the Alaska National Wildlife Refuge shows, exploitation of sensitive government lands can be a political hot potato. The Colorado reserves lie on land surrounded by National Parks and other sensitive areas. So, simply put, in addition to the economic and technology matters, there are also significant political considerations.

Finally, as my earlier research on the history of oil estimates showed, the current political economy of the oil industry accounts for the way assumptions underlying such projections are interpreted. In other words, while the projections are justified in terms of geology and technology, it is the current political economy of the industry which affects whether such estimates incorporate 'optimistic' or 'pessimistic' assumptions about the implications of those factors.  Simply put, when there is lots of shut in short term capacity, the industry thinks that there is lots of energy available and opts for optimistic assumptions about future geology and technology. Alternatively, when demand outstrips supply, there is no shut in capacity, and the industry is doing everything it can to find new sources and get them on to the market, then pessimistic assumptions about future geology and technology become the order of the day. Thus, given the current glut of supply on the market, history suggests we would be wise to question the ultimate validity of these particular projections.

US Oil Imports: Canada up, Middle East down

Robert Rapier has put together an interesting table documenting the changing dynamics of US crude oil imports over the past decade.

The data, taken from the US Energy Information Agency, document a dramatic shift away from dependence on Middle Eastern oil: 2011 imports were down substantially from their 2001 levels for Saudi Arabia (-32%), Iraq (-41% -- though there was a bit of a war there that affected capacity!) and Kuwait (-38%).

The big increases in US imports have come from Canada, particularly the Tar Sands (up 58% and now nearly twice the volume of imports from Saudi Arabia) and a variety of previously relatively small producers (Algeria, Brazil and Cameroon).

Particularly interesting is the differing trends among the US's NAFTA partners. Canada, which is bound by NAFTA's controversial proportionality clause, has seen exports to the US increase dramatically while Mexico, which is exempt from this clause, has slightly lowered its level of exports to the US over the 10 year period.

The construction of the Keystone XL pipeline will exacerbate the already existing trends and further entrench the US reliance on Canadian sources of crude.

Oil Prices

Interesting graphic showing the disconnect in current US policy rhetoric over gasoline prices. In contrast to what is being suggested, prices are largely unrelated to US production. Not surprisingly to anyone familiar with the industry, oil is a global market largely unaffected by the production dynamics of relatively stable countries like the US.

A more detailed discussion is here, other charts are here. 

The Economics of Peak Oil

James Hamilton, professor of economics at UCSD, runs the useful Econbrowser site providing links to a diverse set of resources dealing with the analysis of current economic conditions and policy.

He is also responsible for OIL PRICES, EXHAUSTIBLE RESOURCES, AND ECONOMIC GROWTH, an analysis of the implications of peak oil. Specifically, the paper analyzes data spanning the life of the oil industry in order to detail the phenomenal increase in global crude oil production over the last century and a half. The analysis demonstrates that a key feature of the growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, which suggests the end of that era could come soon. The paper then turns to an analysis of the history of temporary supply dislocations in an attempt to come to grips with the potential economic consequences of the peaking of conventional crude oil production.

One of the more interesting sections discusses the price elasticity of demand over the long run and whether or not the reductions in demand that accompanied the run up of oil prices during the 70's and 80's were historically unique.

Here one might take comfort from the observation that, given time, the adjustments of demand to the oil price increases of the 1970s were significant. For example, U.S. petroleum consumption declined 17% between 1978 and 1985 at the same time that U.S. real GDP increased by 21%. However, Dargay and Gately (2010) attributed much of this conservation to one-time effects, such as switching away from using oil for electricity generation and space heating, that would be difficult to repeat on an ongoing basis. Knittel (forthcoming) was more optimistic, noting that there has been ongoing technological improvement in engine and automobile design over time, with most of this historically being devoted to making cars larger and more powerful rather than more fuel-efficient. If the latter were to become everyone’s priority, significant reductions in oil consumption might come from this source.

HSBC: Less than 50 Years of OIl Left

Karen Ward, Senior Global Economist for HSBC, announced an HSBC report claiming that there is less than 50 years of conventional oil left in the world. Fifty years of oil left at the current rates of consumption. The enormous growth of automobile use in China, India and other developing countries, estimated to be over one billion new cars, will put severe strains on those declining supplies.

http://green.blogs.nytimes.com/2011/03/30/less-than-50-years-of-oil-left-hsbc-warns/

What I find baffling is that this story is posted in the "Environment" section of the New York Times when it is clearly an economic story of a report released by the second-largest commercial bank in the world.

Freudenburg on the Gulf Oil Spill and more

Noted environmental sociologist William Freudenburg is, unfortunately, in ill health. This hasn't affected his productivity, however, as he completed his most recent book about the Deep Water Horizon drilling accident, Blowout in the Gulf, in a mere 60 days. Despite the rapidity with which the book was written, it doesn't suffer in depth as the work is informed by Freudenburg and Gramling's combined 60 years of research on the oil industry and energy issues. As Charles Perrow noted in his review of the book:

Freudenburg and Gramling put the spill into the perspective of energy dependence, take us gracefully through technical details blurred by the popular press, grasp the local and national politics (offering some political detergents of their own along the way), and give the spill what will likely be its most masterful handling. The authors' years of work on oil drilling and the carbon economy get a dramatic payoff in this very timely book.

Freudenburg presented a lecture based on the book, Learning Lessons from Disaster? The BP Oil Spill and the Future of Energy in America on November 15 and the webpage has a link to a video of the lecture. Unfortunately, the 'rtsp' based link didn't work for me, but the folks at Santa Barabara were nice enough to provide this alternative http based link that did. The talk has four significant sections: 1)a brief discussion of the recently released findings from the Presidential Commission looking into the accident, 2) some basic background on oil, its formation, and the drilling process, 3) a discussion of risk and risk management and, in particular, an analysis of the extent to which BP's behaviours differ from those of other industry players, and ends with 4) a detailed history of US energy policy aimed at illuminating the question of why the US is in the position of drilling for oil in water more than a mile deep. While the effects of his health are evident (Freudenburg delivers the lecture sitting down), he remains the energetic and engaging speaker he always has been. There are reasons his undergraduate lectures frequently end with applause, and those reasons are clearly exemplified in this talk.

Finally, Freudenburg was honoured at Freudenfest 2010: a day long collaborative discussion and celebration of his contributions to sociology, environmental studies, and society held November 6, 2010, at the University of California at Santa Barbara.

The Freudenfest webpage includes a program of the events, powerpoint slides from the following presentations, and a gallery of images taken at the event.

*The Said and Unsaid: Disproportionality and How it is Supported through Discourse, Debra Davidson, Dept. of Rural Economy, University of Alberta

*Working with Bill, Robert Gramling

*Social Change in Natural Resource-Based Rural Communities: The Evolution of Sociological Research and Knowledge As Influenced by the Contributions of William E. Freudenburg, Richard S. Krannich, Dept. of Sociology, Social Work and Anthropology, Utah State University

*Transcending Human Exemptionalism: Freudenburg's Sociology in Which Nature Matters, Raymond Murphy, University of Ottawa, Canada, and Riley Dunlap, Oklahoma State University, USA

*Resource Dependency and Diversity: From Findings to Metaphors (and Back Again?), Richard C. Stedman, Dept. of Natural Resources, Cornell University

*Political Science: The Intricacies of Activism Among Coastal Restoration Scientists, Lee Clarke, Rutgers University

How Much Is Left? The Limits of Earth's Resources

The September issue of Scientific American (Scientific American 303, 74 - 81 2010
doi:10.1038/scientificamerican0910-74) includes a graphically rich summary of information about the availability of natural resources and various other environmental matters. For those who don't have access to the magazine, there is also a interactive version (see below). While the information is the same, I didn't find the interface to be particularly user friendly. Yes .... the interactive version is right here. But, really, you might want to have a look at the good old print version (or its pdf cousin) :+) There are also a variety of related articles and web resources.



What's Left?Powered by Ergo:Ux

Frank Zappa, the Exxon Valdez and the Deep Horizon Fiasco

I'm a fairly visual person, as those who have waded through the posts on this blog will realize. But, while wondering the world of YouTube I came across Frank Zappa's chilling synclavier work Outrage at Valdez which was used as the score for a video produced by Jacques Cousteau's son, Jean-Michael. Oddly, I find that this audio does a much better job of capturing the sinister destruction brought about by the Exxon Valdez, and now being repeated in the Gulf, than any photo. Here's the first 7 minutes of the song.

Visualizing the Deep Horizon Spill

The estimated flow rate of the Deep Horizon spill keeps going up. The current low estimate is a flow rate of 25,000 barrels a day. But what, exactly, does that look like? 25,000 of anything is a lot, but exactly how many? Fortunately, some kind folks have used gaming technology to simulate 25,000 barrels stacked around a pillar 15,000 feet high, and then group by group falling to the ground.

BP: Image vs Reality

For a period of time in the 1990's British Petroleum (which rebranded itself as BP -- Beyond Petroleum) and Shell were viewed as the 'good' oil companies -- companies that emphasized environmental concerns, supported climate change legislation, etc.



But, over time, what once appeared as legitimate efforts by these companies has morphed into greenwashing. Whether that was the intent from the start or whether they were pulled back to current behaviour by the need to compete with less enlightened oil companies is really irrelevant. Shell's image went down in flames with the hanging of Nigerian anti-oil development activist Ken Saro-Wiwa and others in 1995, an event that brought to light the role of Shell and other oil companies in the support of Nigeria's repressive government.



In comparison to Shell, BP has done a better job of retaining the public sheen of environmental respectability. But, much like what happened to Shell with the Saro-Wiwa incident or, more recently, to Toyota's image as a manufacturer of safe and reliable cars, the current oil spill in the Gulf of Mexico has become an image tipping point -- the incident that unleashes a flood of stories that undermine the narrative the company has spent so much time and energy cultivating.

Here are two specific examples. ProPublica has unearthed a letter from two Congressmen to BP,

In that letter, dated Jan. 14, 2010, Reps. Henry Waxman, D-Calif., and Bart Stupak, D-Mich., noted that the company's efforts to cut costs could imperil safety at BP facilities.

Between September 2008 and November 2009, three BP gas and oil pipelines on Alaska's North Slope ruptured or clogged, leading to a risk of explosions, the letter said. A potentially cataclysmic explosion was also avoided at a BP gas compressor plant, where a key piece of equipment designed to prevent the buildup of gas failed to operate, and the backup equipment intended to warn workers was not properly installed.

The letter was addressed to BP's president of Alaskan operations, John Mingé. The congressmen have been investigating BP's safety and operations since 2006, when a 4,800-barrel oil spill temporarily shut down the Prudhoe Bay drilling field pipeline.

In a similar vein, the Seattle Times today reported

BP, the most important oil company in Alaska and the corporation at the heart of the Gulf of Mexico oil-drilling disaster, has struggled with perhaps the oil industry's worst environmental and safety record of the last decade.

The British oil company BP produced the largest oil spill ever on Alaska's North Slope, faced criminal charges for intentionally dumping hazardous waste near Prudhoe Bay and was excoriated by Congress for a string of oil-pipeline leaks on the tundra.

Members of Congress — Republicans and Democrats alike — have accused the company of everything from profiteering at the expense of employee safety to pressuring government contractors to whitewash draft reports that criticized its upkeep of worn-out Alaskan oil pipelines.

Oil Supply in Atlantic Provinces and Eastern Canada

Review of "Eastern Canadian crude oil supply and its implications for regional energy security"

by Rick Munroe

Authored by Dr. Larry Hughes, an energy security analyst at Dalhousie University in Halifax, Nova Scotia.

Dr. Hughes' study entitled “Eastern Canadian crude oil supply and its implications for regional energy security” was recently published in Energy Policy (Jan. 2010, 8 pgs).

The text of Hughes’ new study is clear and concise and is supplemented by eight tables and six figures which illustrate the various points. Most notable is Figure 5:

This graph clearly illustrates the stunning decrease in imports from the North Sea (UK and Norway), which provided almost two-thirds of eastern Canadian supply in 2000. North Sea decline has forced eastern Canada to increasingly rely on Algeria, Angola and Iraq to fill the gap, all countries with political stability risks.

The rest of the article and links to reports are at the Energy Bulletin.