By Chris Nelder
Posting in Energy
Energy columnist Chris Nelder explains why recent projections of oil independence by 2020 are not only wrong, but counter-productive in the long run.
A fever has swept over American energy observers in recent weeks as they compete to write the most optimistic story of impending energy independence. For example, see Clifford Krauss in the New York Times, Citigroup's Ed Morse in the Wall Street Journal, and Raymond James's outlook covered by Angel Gonzalez for Dow Jones, with perhaps the "Bonanza" theme song in the background.
Or if not a fever, then perhaps a mental illness, or heavy doses of good acid. Because as far as the data shows, none of these projections have any basis in reality.
The vogue suggestion is that North American oil production is about to surge and wipe out our 8.7 million barrels per day (mbpd) of oil imports, making us self-sufficient in oil by 2020. Most of this new oil is expected to come from fracked shales like the Bakken Formation in North Dakota, plus new drilling in the Gulf of Mexico and offshore California, an increase in Canadian tar sands production, and a miraculous reversal of the long production decline in Mexico.
Citigroup, under the leadership of Morse, probably holds the current record for the most outlandish projection. It suggests that North America will add the equivalent of 1.4 mbpd of new production every year between now and 2020, including 0.4 mbpd from tight oil. (That projection was then thoroughly debunked by Dave Summers at The Oil Drum.)
What these optimistic scenarios don't tell you is what they really look like, and what they'll really do to the U.S. in the long term.
The basis of this new euphoria, as I explained in February, appears to be the 0.6 mbpd or so of "tight oil" production from the Bakken. These wells typically produce a mere 80 to 100 barrels per day on average, to 150 barrels a day at the high end. Using the higher production figure, achieving 0.4 mbpd of new production every year through 2020 would require at least 20,000 new wells nationwide.
To see the effects of such drilling, consider this map of oil and gas wells in the Elm Coulee field of Montana, the first commercially successful portion of the Bakken Formation. Some 7 to 10 active oil wells per square mile dot this field.
But that's more representative of a formation with a single pay zone. Some U.S. shales actually overlap each other, so perhaps instead we should visualize the Denver-Julesberg basin, an area we've been drilling for roughly a century. The basin contains multiple layers of oil- and gas-bearing rocks, including the Niobrara Shale, which is anticipated to produce 250 thousand barrels per day by 2020. This map shows 20-25 producing wells per square mile near Platteville, Colorado.
That, then, is the onshore portion of the new energy independence vision: A pincushion, where we draw 60 to 150 barrels per day from each hole. And we'll have to keep drilling them like mad, because production from those wells drops sharply in the first year then tapers off to negligible levels after 15 years or so, and eventually becomes uneconomical.
Production profile of a typical Bakken well. Source: North Dakota Department of Mineral Resources
How far can tight oil from these shale formations take us? According to the current Energy Information Administration (EIA) survey of U.S. shale gas and shale oil (tight oil), we have an estimated 24 billion barrels of undeveloped technically recoverable shale oil in the Lower 48. In 2011 the U.S. consumed 6.85 billion barrels of oil. So the big bonzana of shale oil amounts to about 3.5 years of demand.
Outer Continental Shelf
What about our offshore potential? The oil and gas industry has been agitating for greater access to the Outer Continental Shelf (OCS) since onshore oil production began declining in the 1970s. What if we opened all of it to drilling, without any restriction?
Source: U.S. Minerals Management Service [Click for larger version]
The 2011 assessment from the Bureau of Ocean Energy Management (BOEM) gives a mean estimate of 88.6 billion barrels for the entire OCS. (The data in this assessment varies only slightly from the 2006 data shown in the chart above.) Therefore, if we drilled the entire OCS, it might meet 13 years of demand. If the 95 percent probability estimate of 66.35 billion barrels is correct (and the P95 estimates usually are), then it would meet less than 10 years of demand.
After the onshore tight oil in the Lower 48, the offshore oil of the OCS, and the Gulf of Mexico where oil production has modest growth potential, the only remaining serious prospect in America is the Arctic National Wildlife Refuge (ANWR), the target of the most contentious battle for new oil drilling in the last decade. We won't know how much oil is there until we actually drill it, but according to the current estimate from the U.S. Geological Survey, the federal portions of ANWR might have 4.2 billion barrels under the P95 estimate (0.6 years of demand), or 7.7 billion barrels under the mean estimate (1.1 years of demand).
There is another unexploited resource in America known as oil shale, not to be confused with shale oil (tight oil). Oil shale is a dense, hard rock impregnated with kerogen, an "uncooked" form of hydrocarbon that nature hasn't yet converted into actual oil. Oil cheerleaders like to talk about the trillion barrels or so of it that exists in America in places like the Green River Formation of Utah, but as yet no one has figured out how to produce it commercially (at a profit). So we may consider our prospects from oil shale to be a big fat zero.
For a final point of reference, there is the EIA's 2010 assessment for the entire U.S. Although it uses 2008 data, I believe it is their current overall assessment. It shows 198 billion barrels of technically recoverable resources (not "proved reserves") for the entire country, excluding areas where drilling is currently prohibited and areas within 50 miles of the Atlantic coast. By this assessment, the U.S. could meet 29 years of demand. Including "undiscovered technically recoverable resources"—like ANWR, OCS and tight oil—we might have enough to last about 41 years in total.
Finally, for reasons I have explained in previous columns, I do not believe that biofuels or tar sands can be significantly scaled up from current levels. The expectations for these fuels in the 2020 independence stories are simply not supported by the data.
The real prospects for U.S. oil production
So if all limits on drilling in the U.S. were removed, and if the estimates of undiscovered, unproved oil are correct, there is enough oil remaining on U.S. soil and in federal waters to meet demand for about 41 years, including 17 years' worth from ANWR, OCS and tight oil shales.
But at what rate could we produce it?
We can't know the production rates of OCS and ANWR until we produce them, but as I explained last month, exploiting those resources would be a long-term effort: probably 10 years to bring the first oil online, and 15 years or more to reach maximum output around 2 to 3 mbpd. By that time, it would be hardly noticeable as it compensated for the loss of oil production in the U.S. and elsewhere due to the depletion of mature fields.
Suppose we forget about all these niggling realities for a moment and just take the Citigroup projection at face value. Let's assume that U.S. petroleum production climbs from 5.8 mbpd in 2011 to 10.2 mbpd by 2020 as they forecast. Let's further assume that all limits on drilling are removed. What does this increased rate of production do to the lifespan of our resources?
It cuts it nearly in half.
At today's production rate, we would exhaust all of the proved, inferred, and undiscovered oil in the U.S. in 133 years. But if we ramp up to Citigroup's 10.2 mbpd rate and hold it there, we'd exhaust it in 76 years. Leaving out undiscovered resources, we would exhaust U.S. oil in 39 years at the current production rate, or in 22 years at the "energy independence" rate.
What "energy independence" really means
So now we know what the "energy independence" strategy really means.
If we take the status quo path, maintaining imports and overall production at current levels, but do not drill ANWR or OCS and do not increase tight oil production, we might have about 40 years to prepare for the day when U.S. oil production goes kaput. (Actually, it would be a gradually declining production rate over a longer time, but let's not overcomplicate the math here.) If we maintain imports and overall production at current levels but gradually drill everything, and the remaining prospects lived up to expectations, we might have 133 years before the oil dried up.
Alternatively, if we take the "energy independence" path and turn all of America into a pincushion, open all the wilderness, accept all the risks of freshwater contamination from fracking and saltwater contamination from offshore spills, and improbably raise oil production to meet all of our oil demand, we might have 76 years of output left. If we drill everything and raise production to meet all of our liquid fuels demand (which is currently met by natural gas liquids and biofuels in addition to oil), we might have 41 years. And if we try to drill everything and meet all of our needs domestically, but the undiscovered oil turns out not to be there, or not to be commercially viable, then we could drain the dregs in just 22 years.
As veteran petroleum geologist Dr. Colin Campbell says of peak oil, “As any beer drinker knows, the glass starts full and ends empty and the faster you drink it the quicker it’s gone.”
All the talk of incipient energy independence is a mere pacifier and a distraction. It's a way of avoiding the fact that at some point we must take action and prepare for the day when the oil is finally gone. Yet we know that it will take many decades to transition most of our infrastructure to electricity, and that if that electricity isn't generated by renewables, it will be powered primarily by coal and natural gas. . . until they too run out.
The fact is, 40 years probably isn't enough time to make that transition. As I discussed last November, we really needed to begin it 40 years ago. We will probably wind up drilling everything anyway because we'll need the oil to rebuild our infrastructure, having started on the transition so late. But maximizing our production now to satisfy a short-term political need, or to temporarily plug a structural trade and budget deficit, would be stupid and counter-productive and foreshorten our already too-short window for transition.
Our remaining prospects aren't a fresh full pint of beer, and drilling them is no solution to peak oil. If we were to achieve the energy independence production rate we might feel better for a decade or so, but it would come at the price of decades more of greatly diminished domestic production later on—at the very time when global oil exports are declining fastest and becoming intolerably expensive.
So that's your real choice, America. You can slug down that last swallow and go home early, or you can linger awhile, sip it slowly, and stick around 'til closing time.
Photo by Chris Nelder
Apr 3, 2012
I cannot speak for the rest of the California coast, but oil is constantly leaking naturally a short distance off shore north of San Diego. Naturally occurring tar balls as big as baseballs litter the shoreline from Oceanside to San Onofre. I have seen tar balls as big a border collie and almost as hairy with all the junk that sticks to them. The leakage is pretty extensive. Quote - And then there are the massive slicks. You can see them, sometimes extending 20 miles from the seeps. - http://www.isa.org/InTechTemplate.cfm?template=/ContentManagement/ContentDisplay.cfm&ContentID=76955 Would drilling be any more harmful than not? Would drilling actually relieve pressure and slow the natural leaking? Both valid questions.
As the Director of Fuel for The Sunshine State BioMass Cooperative, we are using the available Bio-Mass in Florida, which is currently being wasted, and turning it into Renewable Energy. We are working on developing a real Energy Policy for our great nation. The market for our product is growing by 20% a year and Pike Research says the demand for biomass is set to grow, hitting about 1 billion tonnes a year within the next 10 years. As we continue in this direction we can put less demand on oil. For more info go to Bioenergy Insight and get the real story about this New Developing Industry.
Oil at $140 per barrel should be $5 per gallon which will cut U.S. demand, provide incentives to move to coal (cleaned up) for power generation, natural gas for transportation (helped by renewables), and allow us to sell our oil to China and India as their middle class demands automobiles. Might clean up our National debt or a big chunk of it and I've us the time to work out disposal of nuclear waste or another source by the end of the century.
Production from US tight oil formations could reach 4 mbpd of crude plus 5 mbpd of NGLs (9 mbpd total liquids) by 2030. So said Tyler van Leeuwen from Advanced Resources International, in a talk at a CSIS conference. Advanced Resources is a consulting firm which is paid by clients to make these types of forecasts. The projection was made using "play by play" geological models combined with economic models (including rigs, infrastructure constraints, based on EIA price projections of oil rising linearly to $140 / bbl and natural gas rising to $6 / MMBtu). In these models Bakken production peaks at 1.5 mbpd of crude in 2020. Total recoverable resources exceed 100+ billion bbls recoverable liquid resource (about 45 billion oil and 60 billion NGL). 300+ tcf of associated dry gas will be also be produced because the liquids pay for it. Leeuwen's talk starts about minute 11. He starts with history / addresses skepticism of tight oil. Leeuwen gets into discussion of the models / forecast around minute 19. Other panel members generally concurred. http://www.c-span.org/Events/CSIS-Holds-Conference-on-Oil-amp-Energy-Pol... WASHINGTON, DC Tuesday, April 3, 2012 The Center for Strategic and International Studies (CSIS) held their annual conference on energy policy Tuesday. This year's theme focused transforming the United State's oil and energy policy challenges. This year's theme was titled "Tight Oil: Possibilities, Challenges, and Policy Implications" and featured three expert panels from the energy field. The first panel looked at technology advances in the oil industry. Michael Schaal, Director, Office of Petroleum, Natural Gas, and Biofuels Analysis, Energy Information Administration moderated the discussion. The next group looked at the existing infrastructure challenges facing the transportation, refining, and natural gas processing. The last panel talked about the ties between politics, the economy and environmental issues
It doesn't matter how long the current shale boom lasts - 20 years or 70 years. So long as it outlasts Chris Nelder. Matt Simmons went to the great beyond with the shale gas boom downing out his "wind to ammonia" fantasy for the Gulf of Maine. I suspect Mr. Nelder will similarly see his renewable fantasies postponed well beyond his lifespan. To be clear hear - I wish for both Mr. Nelder and the shale boom a long, healthy, 30+ year run from here on it. I enjoy watching the domestic oil industry thrive, and I equally enjoy watching Mr. Nelder twist on the line as he backpedals and tapdances and does everything he can to deny the energy boom exploding all around him.
Thanks for the information on the misinformation about US oil independance. Oil independance was lost due to peak domestic oil production in the late 60's followed by the rude awakening we got when OPEC asserted themselves in the early 70's and we did not make the changes then to be oil independant. You gotta admire the state of the art salesmanship to convince so many people that they can have cheap fuel if only the industry was allowed unfettered access to the pockets of oil in the face of the increasing costs of exploring and developing new sources of oil. I would like to see an article showing how many products we use that are made from oil as well as how much oil it takes to make those products. Oil has been useful for making things from fuel to fertilizer to cosmetics to the many forms of plastics.
Your politics are bleak. Reserves today are the same as they were 40 years ago. We've been running out of oil since the original Earth Day. Producers have improved their technology to the point of getting 'blood from a rock.' And it's safer and cleaner than ever to drill and mine for resources today; the Gulf BP spill and Exxon Valdez accident notwithstanding. The oil spill in 1969 in the Santa Barbara channel was a horrendous accident but there is more natural oil seepage in the channel aggretatively than the original spill. None of those disasters are events to be repeated but to throw out the baby with the bath water is silly on its face. Burning coal is 85% cleaner than old technology was but we've basically ceded that to the Chinese which burn OUR coal in dirty, old-fashioned plants and put another one online every week. India is right behind the Chinese in using old technology. We're squandering an energy source we can control and can continue to improve its use technologically. 'All of the above' theme seems to be 'none of the above' in practice. We need alternatives and there are great strides being made but they are just not ready for prime time. Energy demand will double over the near term and we need more sources of energy from all sources...not just those that are politically correct. No to coal, nuclear, oil & gas, and even wind (by the purists or NIMBY crowd) is shortsighted. I support the Pickens plan which advocates using natural gas and wind to increase or energy production while we develop alternatives. And we don't need to hear that it won't help in the short run...we'll need it in a few years also.
What effect do bold and repeated statements about attaining "energy independence" have on the global market? If these statements are given credence by other global players, investment in oil production in other parts of the world might slow in anticipation of the slowing in growth of U.S. demand. These statements thus become counterproductive. But on the other hand it is likely that other producers recognize these statements as the political air they really are.
Well, you can't say it any plainer than that! Great analysis and article! So much for "energy independence"!
Great job of documenting what should be obvious to any so-called "energy expert" and even our most minimally competent political leadership. The fact that isn't apparently obvious (meaning a general lack of competency), or even with your excellent documentation is being strategically denied to serve their own self interest agendas - is greatly depressing.
The current "plan" (I use that word loosely) seems to be to use natural gas for power, export the coal, refine all our oil (plus some imports) and export the excess refined goods. Gasoline and diesel demand is kept low through agressive purchasing of high mileage cars. This is all happening right now. It's better than a plan, it's an action in motion. Despite not being the result of any thought-out planning process that I'm aware of, this strikes me as being as good a strategy as just about any. We pretty much have the infrastructure to export the coal (one or two west coast export terminals are in the works) and natural gas power plants are cheap (and efficient) to build. Low interest rates facilitate the car loans for buying high mileage cars, and there are lots of attractive, long-lasting cars that exceed 30mpg city. The only downside to this plan is we'll be in trouble if natty gas prices spike. That said, the utilities are likely buying cheap natty gas futures for at least 5 years out. Do we need an energy plan for more than 5 years out? We've never had one before. Something always comes along to save our bacon (just like the shale gas glut we have now). I'm not worried - but I've got a real job. I don't make my living fear-mongering (unlike some other folks).
Thanks for the link, scarmani. Interesting material there. Wish I could see the slides! If you find a link to the slide deck, please pass it on. As van Leeuwen's nationwide estimate of 44 Gb of oil is nearly 2x that of EIA, one wants a closer look at their hyperbolic type curves and proof that they're well-fitted to the historical production - if they are not, it's easy to wind up with EUR estimates well off the reality. It also seems indefensible to assume that $140/bbl (I assume WTI) can be reached and maintained for decades, when we already know that $100 /bbl begins to kill U.S. demand. If they improve their off-take capability though, perhaps they can mark to Brent instead of WTI. Again, more details needed. One also wonders whether their EUR for NGLs takes into account the 1/3 that's being flared, or assumes that it will all find its way into a pipeline. Anyway - intersting info, thanks for a valuable contribution to the discussion.
Mr. Mcmurtry, The future will find us where ever we are, and if folks like you are right (highly unlikely) and still in charge (more likely) we'll all be twisting in a fossil fool carnival of tornados, hurricanes, floods, droughts, fire and pestilence. Enjoy helping to bring on the doom.
"Reserves today are the same as they were 40 years ago." The additional oil that has been added into the overall supply, is more difficult and expensive to access and extract. Therein lies a contradiction, because the only reason why oil companies are going after, and discovering, these unearthed reserves, is because prices have sufficiently increased. As Julian Simon previously discerned decades ago, you never actually run out of a commodity. As prices increase (regardless of speculator-driven or supply and demand) the free market is encouraged to look elsewhere and replace that commodity with some cheaper alternative. And obviously Pickens is merely following that edict by proposing to use natural gas and wind energy. "Burning coal is 85% cleaner than old technology." Except that such activity requires the installation of expensive scrubbers (to make them cleaner than old technology), which is WHY there was a large decline in new coal burning plants since the 1970s, up until George Bush took office in 2001. And all things are relative. Coal is tens of times dirtier than oil and natural gas, making an 85% reduction somewhat meaningless when it still is dirtier than oil and gas. Further, the coal industry has been fighting tooth and nail to have its emissions further curtailed...so the point is somewhat moot, because clean coal is a misnomer. Years ago I too argued that we should push for clean coal, but the reality is that coal producers have decided that coal is "clean enough". "India is right behind the Chinese in using old technology." Half-true. Both India and China lead the world in inve$ting in green technology and China is forging ahead with free market trading of pollution credits while Republicans dig their heels in.
Investment in oil production here & elsewhere is driven by ordinary supply & demand factors. Oil from the USA, whether closer to the optimistic forecasts or the pessimistic ones in quantity, will be expensive. Demand will continue to go up as India & China (1/3 of the global population between them) & other countries develop their way out of poverty.
" their EUR for NGLs takes into account the 1/3 that's being flared" ummm, they don't flare the liquids. They flare the gas. So, no, they probably aren't assuming 1/3rd of their oil-priced NGLs are being flared. As to the gas - their throwing natty gas infrastructure in the Bakken as fast as they can. That infrastructure has been much expanded over the last 2 years, and it will be much expanded over the next 2 years. The only reason there is a high flare rate is that the drillers are so much more produced than anyone anticipated (which sort of disproves your whole "the reserves are overestimated" thesis). Cheers
So the abundance of reasonably priced fossil fuel energy is my fault? And it's going to create apocalypse . So I guess it's either one apocalypse or the other - either the "Peak Energy" apocalypse or the Global Warming apocalypse. Personally, I doubt either will occur. The technologists have just defied all odds and fixed the former. I expect they will fix the latter as well. Certainly professional doomsayers won't contribute anything productive, in any event.
I see no reason to discredit this prediction that flaring goes below 20% within the year (in as much as 1 new processing plant is on line, and 2 more are funded and scheduled to go on line soon). Unless, of course, the produiction estimates are under-estimated. Which wouldn't surprise anyone whos been tracking the real numbers here. http://bit.ly/y9TZTR
Yep, there's the crazy talk. This country is producing the most natural gas in it's history. It has the most advanced natural gas infrastructure in it's history. It's going to plant and grow and harvest more corn this summer than it is ever has had in it's history. Oil is somewhat expensive. It's hardly prohibitive. My car get's 50% more miles to the gallon than my parent's car did - for all practical purposes, gasoline is cheaper than it was for my family growing up. That's true for America in general. Even at $4 per gallon, gasoline expenses are a smaller slice of the household paycheck than they were in the 80s. (and much smaller than the 70s). You're just off your rocker, sir. You do to credit to the environmental movement. The US is going to drill and frack this resource as fast as we can - and long before it's gone, we;ll have the tech to do something else. And whatever that new tech is, you'll be screaming about that too. Because this isn't about reality - it's about people like you being busybodies telling everyone else how to live their lives and use their land.
James wrote, "The narrative here needs to recognize abundant reasonably priced gas, or the narrative will be marginal, ignored, and borderline delusional." How long will it take you to realize that preparing for a resource constrained future is the opposite of delusional. "Reality" for the thinking individual looks backwards and forwards as Chris does with everything he writes and all the data that he pulls to illustrate it. Every expert on the planet tells us that it takes a minimum of 2 decades to shift infrastructure substantially, yet you talk of abundance. Are we to turn our country into a dirty, leaky pincushion for 30 years and end up with nothing to show for it, but a dirty, leaky pincushion with horrendous water and air pollution? The numbers aren't good, even for business as usual over that period of time as Chris invariably points out. How many fracking wells that go dead in a few years can we drill at $4M plus a pop on land or $200M plus a pop in the sea before the effort turns us into a basket case? Sh*t happens no matter how careful or regulated this effort is and vast water, soil and sea resources are polluted beyond use for centuries, just when we'll need them the most. Should we ignore this? It's so reassuring that YOU will.
"the abundance of reasonably priced fossil fuel energy" is much more than a meme. Natural gas is a fossil fuel. For N America (i.e. the largest industrialized economy in the world) natural gas is both abudndant and cheap. Which part of this don't you (and Chris Nelder) understand? It seems pretty obvious to everyone who is based in reality. You two who keep screaming "shortages" are looking sillier by the day. The narrative here needs to recognize abundant reasonably priced gas, or the narrative will be marginal, ignored, and borderline delusional.
James, "So the abundance of reasonably priced fossil fuel energy is my fault?" No, your fault is buying into the meme of abundance. "So I guess it's either one apocalypse or the other - either the "Peak Energy" apocalypse or the Global Warming apocalypse." No, it's at least 4 of 'em. To the above you can add the over-population and financial apocalypses, a right perfect storm. The technologist have a shot at considerably mitigating the storm, if we use the recent uptick in fossil fuels to build out the alternative infrastructure and not to drive 50 miles to work and 5 miles to the WallMart for ciggies. Fat chance, if you have your denying way, because whether it's 3 years or 30 years, the empty hole in the Eaarth is just as big a crash, or "apocalypse."