Conventional wisdom about unconventional oil is probably wrong
Just because there's plenty of unconventional oil out there – from tar sands to oil shale – doesn't mean it's economically feasible to use it.
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Heavy oil, on the other hand, is actually being extracted in many places around the world. While the resource base for heavy oil is actually much larger than for conventional oil, typically a much lower percentage of any reservoir can be extracted. Historically, the recoveries from conventional oil reservoirs have averaged around 35 percent. The percentage for heavy oil can be as low as 5 percent though many reservoirs yield a considerably higher percentage. The point is that while people can quote large numbers for heavy oil resources, these need to be paired with an awareness that we simply cannot get nearly as great a percentage of those resources out of the ground economically as we have conventional oil.Skip to next paragraph
Kurt Cobb is the author of the peak-oil-themed thriller, 'Prelude,' and a columnist for the Paris-based science news site Scitizen. He is a founding member of the Association for the Study of Peak Oil and Gas—USA, and he serves on the board of the Arthur Morgan Institute for Community Solutions. For more of his Resource Insights posts, click here.
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Heavy oil is what you probably imagine it to be: a highly viscous hydrocarbon-rich liquid that flows only with difficulty. Though it can in some cases simply be pumped from the ground, often it is heated with steam or by other means to make it flow better. That, of course, increases the cost of extraction over conventional crude. And, heavy oil operations face a double handicap. Not only is heavy oil more expensive and difficult to extract, but it commands a lower market price than conventional crude because it is more difficult to refine. For example,Canadian Heavy Crude Oil futures contracts traded in New York sell at around a $10 to $20 discount to the U.S. benchmark West Texas Intermediate, a high-quality conventional crude. (Prices are actually quoted as the difference in price between the Canadian and U.S. oil, in this case a negative number.)
There is yet another impediment to heavy oil production which has nothing to do with physics or economics. By far the largest deposits are located in Venezuela. But the current administration has mismanaged the government-owned oil company, Petróleos de Venezuela, SA (PDVSA), which dominates oil development in the country. President Hugo Chavez's government has used revenues from PDVSA to fund social welfare programs to address the needs of the country's many poor. But this has led to a lack of investment in Venezuela's oil infrastructure and a consequent fall in oil production.
Thus, for various reasons the all-important rate of production for heavy oil may not over time be able to do much to fill the gap left by the continuing decline in the rate of conventional oil production.
Transforming coal into liquid fuels suitable for vehicles also falls into the unconventional category. The Germans perfected this process during World War II when they lost access to oil. But for now, only South Africa produces an appreciable amount. Here's what I wrote previously about coal-to-liquids production:
Turning coal into liquid fuels for vehicles is now done mostly in South Africa, a holdover from the days of apartheid when the South African government feared an oil embargo could leave the country without fuel for transportation. Turning coal into gasoline and diesel is extremely dirty and extremely expensive. But South Africa paid for the equipment to do so long ago and now must simply pay for domestic coal to supply its coal-to-liquids refineries.
As for processing natural gas into liquid fuels using gas-to-liquids technology, it is capital-intensive and currently only suitable for turning what is called "stranded gas"--natural gas that would otherwise be flared into the atmosphere--primarily into diesel.
I should say a few words about tight oil because it is often mistakenly referred to as shale oil, even though that term is more properly interchangeable with oil shale. Tight oil does indeed come from deep shale deposits, and it is released through hydraulic fracturing or fracking, the same process that is causing so much controversy when it is used to release natural gas from deep shale. Tight oil does not really fall into the unconventional category since it produces oil that is suitable for conventional refining.
While hydraulic fracturing is not new, the particular form of it used to make tight oil deposits flow has only been in widespread use since 1998. This form has made previously uneconomic deposits of oil in such places as North Dakota profitable to extract. U.S. oil production has risen recently as a result. But the EIA projects that production of such oil in the United States will top out in 2030 and then decline even as overall U.S. oil production hits a secondary peak earlier in about 2020 and then starts to decline. (The United States hit its all-time oil production peak in 1970.) Total "recoverable" resources of tight oil in the United States--remember, they're not necessary economically recoverable--are put at 24 billion barrels, or the equivalent of 288 days of world supply. Based on what we know today, tight oil production will not do much to overcome the loss of other conventional oil production worldwide.
Finally, there is the seemingly esoteric question of Energy Return on Investment (EROI). Simply stated, it takes energy to get energy. More than a century of cheap energy has made us forget this critical fact. As we exploit ever more difficult-to-get energy resources, we are obliged to spend ever increasing amounts of energy to get them. When the EROI of a seeming energy resource reaches one--that is, when it takes one unit of energy to obtain one unit of energy--that resource ceases to be a source of energy.
The United States is thought to operate at an EROI for all energy sources of about 40 to 1. It is hard to imagine running the country entirely on fuels such as oil from tar sands which has an EROI between 5.2 and 5.8 to 1. For oil shale there is little to go on since there are no commercial-scale operations. But available estimates tell us something about why this resource has never been successfully commercialized. Reported EROI ratios are between 1.5 to 1 and 4 to 1. Compare this to between 12 to 1 and 18 to 1 for oil imported into the United States.
As we as a species continue to exploit energy resources that are more and more energy-intensive to extract, we will find out the true meaning of "net energy." That is the energy left over after we find, extract, refine, and deliver energy to its user. Net energy is what everything in society except the energy industry runs on. Right now in the United States, if the 40 to 1 ratio for EROI is correct, then about 2.5 percent of our energy is spent getting energy. That leaves plenty for all the other things we want to do.
But if we come to rely on an array of low EROI fuels, we may soon find that vast portions of our economy must now be occupied with energy gathering. A drop to a 10 to 1 average EROI implies that 10 percent of the economy would be devoted to energy extraction. That's four times the current size of the energy sector in the United States. A drop to 5 to 1 implies that 20 percent of the economy would be involved in energy extraction. This progression is called the "net energy cliff", and it augurs enormous changes in the way we structure our economy and our lives if it comes to pass.
Those changes are, in fact, already happening as we realize that unconventional oil won't be cheap. It's unlikely to be plentiful either because unconventional oil will be challenging to produce at the same high rates we've been producing conventional oil. And, the low EROI of unconventional oil should tell us that we cannot count on it to provide as much energy to society as we are used to from much higher quality fuels.
All of the foregoing flies in the face of the (wildly misleading) conventional wisdom about unconventional oil. But if we are to make intelligent policy and personal decisions about energy, we will be better prepared if we work with the available evidence rather than relying on the oil industry's pronouncements of wonders yet to come.
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