Alfred Donovan, a patent lawyer whose blog covers Royal Dutch Shell, takes a look at the largest patent filing in history. Shell thinks they have a sound method for getting top quality oil out of oil shale rock, which would remain profitable as long as oil stayed above $30/barrel. If it works, it would also be better for the environment than conventional drilling [JK: maybe, maybe not].
If they're right, the US would add a truly vast amount of oil to its reserves. Indeed, the USA accounts for 62% of the world oil shale resources, and USA, Russia and Brazil together account for 86% in terms of shale oil content. Other countries with significant oil shale include, in order, Democratic Republic of Congo, China, Morocco, Italy, Jordan and Canada (we're focused on the tar sands, so haven't fully explored), among others. Then there's Israel.
Donovan is something of a gadfly re: Shell, and has been embroiled in a number of activist run-ins with them (gotta say, registering and then winning the rights to royaldutchshellplc.com gets him some points with me). He thinks Shell's technique will work, and notes that Shell has been granted rights to a small patch of shale field in Colorado to make an experimental run with its new method: The Mahogany Research Project.
I certainly hope this one works out for Shell. If not, however, they aren't the only ones putting research dollars into economical processes.
Patent and pump, please.
This is a great entree into a credible non-Peak-Oil perspective. Important debate here that affects lots of things: Mideast policy, Global Warming, Intermountain West land use, and ethanol subsidies are four that come immediately to mind.
Thanks for the heads-up, Joe!
The original blog entry seems to be at the popular and credible Wall Street blog "Seeking Alpha," this post on 4/10/07 by Jack Brynaur.
(To get quickly to a thoughtful Peak Oil point of view, google Deffeyes.)
He may - or may not - be right about Peak Oil.
For instance, imagine that reserves double but the techniques to get it can only produce 1/3 as much per day because it's in much more difficult places. That would be a net resource gain but a flow loss, and so Peak Oil's thesis that we're reaching production limits and entering declining flow totals could still be true.
I don't know enough about Shell's production projections vs. more conventional drilling flow to assess that here.
I have been surfing The Oil Drum -- one of the primo Peak Oil Web sites. The whole Peak Oil thing is that we are at Peak Oil, oil is such an easy and portable energy source and everything else -- ethanol, switch grass, oil from coal, the obvious and easy conservation measures -- is so futile that we are all going to die. The Oil Drum is serious, scolding, depressing stuff.
While The Oil Drum is into the usual kind of "forget fuel-efficient cars, you are going to have to give up your car and learn to like it" mode, they are charitable enough to present the case of "the other side" (the derisively-labeled Cornucopians), and there are enough trolls (people deviating from the orthodoxy of that site) to give you the contrary, more optimistic view.
There are a variety of geeky, technical reasons why the current 85 million barrel per day world oil production is the peak, right here and now, and that of that 85 million, around 10 million comes from Saudi, the swing oil producer, and 5 million of Saudi production comes from Ghawar, the Mother of All Oil Fields, a massive oil-bearing formation about the size of Southern Wisconsin. The Saudi's play their cars close to the vest, but there is geeky speculation that Ghawar is about tapped out and that 5 percent of World oil production is about to go "poof" any day now.
Part of the problem is that we went through this whole thing in the late 70's and early 80's, and oil production did indeed peak and then decline, perhaps because of "demand destruction" in response to the price spike driven by Mideast war and revolution, and we are not seeing the same demand destruction because oil prices haven't quite reached the same high level in constant-dollar terms. I suppose we are eventually going to run out of conventional oil, but the Peak Oil people are saying the peak is now, not 10, 20, or 40 years from now. The Now aspect gives serious urgency to the Peak Oil crisis, but it also opens up the Peak Oil crowd to "crying wolf" (again) because at least at The Oil Drum, the crisis and the warnings are Now without much wiggle room.
One important group of Optimists includes Daniel Yergin of "Eye on the Prize" fame and his colleagues at CERA, who forcast something like an increase in World oil production from 85 to 100 million barrels per day by 2010 (three years from now), more than enough to keep us in SUV's and allow China and India their industrial growth.
But the one thing to keep in mind about these optimists is that the are forcasting 20 MBPD to come from "unconventional" sources such as the Canada tar sands, heavy oil, deep-water oil, converting somewhat more abundant natural gas in remote parts of the world to oil, oil shale, and ethanol and other bio-fuels. This 20 MBPD would compensate for a 5 MPBD decline in existing oil to lift us from 85 to 100 MPBD and keep the wolf at bay.
So maybe the pessimists at The Oil Drum and the optimists at CERA are saying the same thing -- there is no new conventional oil to develop and only steady decline in production, and any new stuff will have to come from developments like the Shell patents and others. The Oil Drum things shale oil is Really Hard while CERA thinks It is Not as Hard as You Think.
The other thing about oil, conventional or otherwise, is that it is not like "Uncle Jed a shootin-for-some-food" and "up comes a-bubblin-crude." Even a discovered and producing oil field needs constant investment in drilling more wells and pumping water, gas, or steam to get as much oil out as is there. We went from a peak of oil production circa 1980, a collapse in demand and prices, an era of low, low oil prices no one predicted, a steady recovery of demand and production, and to the tight supply situation we are in now. There is some suggestion that there was underinvestment during low-price times, and this creates these long boom-bust cycles in oil prices, demand, and production.
In a strange sense, I almost think it too good to be true that oil prices will stay at an even $60 level for long enough to make new energy sources and energy efficiency economical to replace oil imports, and I have an intuition that oil prices will collapse (again), going a Lucy and Charlie Brown football number of oil shale and other schemes, and we will be lulled into energy complacency yet one more cycle. I am kinda waiting for the next oil price collapse to buy Shell stock with their oil shale tech because we will eventually have to do oil shale, but my guess is not quite yet.
Fortunately, America has another good energy news ace card: natural gas.
There are credible estimates that put the reserves within America's ocean economic zone limits at trillions of cubic feet. The only thing stopping production is environmental laws, but if the situation ever gets serious enough those will go by the wayside (arguably, we should build out a core onto-shore pipeline infrastructure right now as a public/national project).
Unlike oil, natural gas is NOT a global market. Liquid Natural Gas is too difficult to transport cheaply and safely - it needs deep ports, which are most often in cities, but its cargo is a potential Daisy Cutter bomb on a mega scale. While shale oil will always be sold at the global price, therefore, and be subject to craziness in the mideast, ineptitude in Mexico, Venezuela, and Nigeria, et al., natural gas prices are pretty much set within the markets they have pipelines to.
The last piece of the puzzle: converting most existing cars to run on natural gas costs several hundred dollars per vehicle. Many airport taxis in Toronto, for instance, already run on the stuff thanks to a setup in their trunk. Natural gas/propane also has a (smaller, but extant) distribution structure that reaches beyond just cars.
Building out the core pipelines is a multi-year job, and augmenting the NG distribution structure would also take a bit of time. If things really do go to hell in the larger war, and my guess is that they will, the USA and Canada would still face an economic depression. But they'd have medium-term (or, if we plan better and get moving, short-term) options that others do not.
Paul (#4) - Excellent, informative commentary. Thanks.
Paul, Joe, great comments. I'd add that:
(1) Natural gas is 'flared' (i.e. wasted by being burned off) in many oil fields, where it hasn't been economical to build pipelines (or the country's too screwed-up to build 'em). Iran and Iraq are big examples. Russia (pipeline) and Algeria (LNG) sell their gas; it approaches oil on a per-BTU basis.
(2) Iraq and Iran (and I'm sure other countries) burn oil to generate electricity. They could burn gas (steam generation or turbines) and sell that oil on the world market. But, mostly, they don't.
(3) Energy extraction projects (oil sands, deepwater drilling, oil shale, etc.) are immensely capital intensive. That means that the investors have to be pretty confident that they'll get a reasonable return, which means that oil prices have to stay high. If oil shale project X requires sinking $100 million and the cost of capital is 5% (say), then the project has to generate $5 million per year for this purpose alone. If project X yields 1 million bbl/yr, that's $5/bbl, but if it yields 100,000 bbl/yr, that's $50/bbl. And this is only cost-of-capital, Project X will also have operating costs. That's why Paul Milenkovic's point about projecting the stability of oil prices is so important: if people think they might fall, these technologies won't get implemented.
AMac, great point re: financing & investors. Thanks, as usual.