[NOTE: This is the latest installment in a new PeakOilMatters series (which started here). It’s about finding a new and better vision to get to, through, and beyond Peak Oil and its widespread impact on what we produce, how we produce, and how we live. We won’t be falling off a cliff tomorrow, and the full brunt of Peak Oil’s effects won’t be experienced all at once, either. Gas and oil do not have to disappear entirely, nor do gas prices have to rise into the stratosphere before Peak Oil’s impact is felt.
Gradually, but inexorably, changes will be in the offing, however. We need to come to a better understanding of this, and start preparing ourselves now for the lengthy transition and just as lengthy ongoing impact of Peak Oil on all of us. Many issues must of necessity be considered, and I hope to make a contribution to the public dialogue we need to have. I hope you’ll find these objectives enjoyable as well as beneficial. We have more of a voice than we think we do. Finding that voice just might be our best hope.]

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(This is a continuation of last week’s post discussing a recent essay by Joel Kotkin urging more domestic fossil fuel production. The last quote of his cited in that post is repeated here:)

“Shale oil deposits in the northern Great Plains, Texas, California and Colorado could yield more oil annually by 2015 than the Gulf of Mexico. Within 10 years, these finds have the potential to reduce U.S. oil imports by more than half.”

“Gail The Actuary” recently posted a very informative piece, and actually addressed this very point, (a follow-up to her discussion in that post of claims—echoed by Kotkin—that the oil shale fields in the U.S. could produce as many as 2 million additional barrels of oil per day by 2015).  She offered several observations which seem to counter those could yields and have potentials:

“I am suspicious that quite a bit of the 2 million barrels a day of additional production by 2015 that is being forecast is not really oil. Instead, I expect it will be natural gas liquids. This currently represents about half of the ‘miscellaneous’ layer [in a chart found in her post]. Natural gas liquids (NGLs) include propane, butane, and other gasses (sic)….
“An increase in NGLs would be of lesser benefit than oil, because it is not directly substitutable for oil, and is a cheaper product. Initially, it would mostly make home heating for those using propane cheaper, but then tend to drive NGL developers out of the market. Unless NGLs can cheaply be converted to higher priced oil products (and refinery capacity can be added quickly to accomplish this), it would seem like a drop in prices would quickly put an end to the NGL ramp-up….
“US oil imports have declined about 25% in the five years since 2005. In the next ten years, I would expect oil imports to continue to decline, regardless of what we do, because the amount of oil on the world market will continue to drop, and oil importers will tend more and more to be in recession. It is not clear how much US oil imports will drop, but a 50% drop in the next 10 years would not seem all that unlikely, regardless of what we what we produce, because of oil exporting countries will tend to consume more, and more countries will shift from being exporters to importers. We are currently importing 9.4 million barrels a day, so a reduction by half by 2020 would be a reduction of 4.7 million barrels a day.” [1]

It’s all fine and well to talk about the “potential” for this or that increase in production. But if it is not placed in the real-world context of increasing demand, depleting oil fields, harder-to-find-and-produce newer resources (meaning more energy being used to produce lesser amounts of inferior quality supplies), and the often-overlooked factor that many oil-exporting nations are now keeping for their own use more of their production totals, then the “potentials” lose much of their luster. Just keeping up with depletion rates still represents a net loss in production if demand is increasing and imports are being curtailed for any or all of the reasons just cited.

And let’s also remember that all of these “new,” more expensive, energy-intensive and time-consuming efforts are taking place because there’s no place else to go. Because these enhanced efforts are more costly, energy prices have to remain high for producers to justify the time, expense, investments (financial, manpower, asset-acquisition), and efforts needed to extract these often inferior oil resources. There is a point when it is no longer economically feasible to invest in production given those limitations and challenges. Higher energy prices are generally not looked upon favorably by consumers. Producers need consumers before they make their investments. Consumers cutting back = less justification for investments, and it’s easy to figure out what happens then.

Gail also comments on the claims that there could be a two-million barrel per day increase in production from the oil shale deposits (something she states “would be a tall order”) by offering some well-reasoned considerations:

“There are several reasons why the hoped for increase might not be realized, however. These include:
“Inadequate infrastructure. One question is whether inadequate infrastructure will prove to be a roadblock to meeting ambitious production goals in five to 10 years….
“Inadequate price. What tends to happen when there isn’t adequate transportation for the oil is the selling price of the oil tends to be depressed, relative to other types….
“It is easy for operators to assume that the price differential will get better, and also that the prices of other types of oil will continue to rise. But all of these things are by no means certain. High oil prices tend to send the economy into recession, so world prices may not rise as much as hoped–they may oscillate instead, rising, then putting the economy into recession and falling again. Also the differential of North Dakota types of crude to Brent may stay low for an extended period, if infrastructure issues cannot be worked out.
“Optimism before drilling. There are many unknowns before drilling including how quickly oil production from individual wells will decline, how long wells will prove to be economic, what proportion of wells will have high production, and the level of oil and gas prices in the future. It is natural for those who are trying to get others to invest in these ventures to base their assumptions on an optimistic view of the future. If experience with shale gas in Texas is any clue, once realities start setting in, the level of drilling may decline, and overall production, after an initial run-up, may decline. If this happens, it will be very difficult to meet the ambitious goals presented….
“If overall production is to be increases by 2 million barrels a day by 2015, it will be necessary to overcome these declines, as well as add 2 million barrels a day of new production. What happens is that each year, more and more oil fields and oil wells within oil fields become non-economic. These are closed. Also, what is extracted is an oil-water mix, and the proportion of oil tends to fall over time. This means that if a given volume of oil-water mix is processed from a well, each year the well will yield less oil and more water.”

Not quite a guarantee, is it?

Mr. Kotkin then turns to natural gas, with all the by-now usual qualifiers and non-specific “statements” which one assumes should be taken as fact (bold/italic mine).

Even more promising, from the environmental standpoint, are huge natural gas finds. Discoveries in Texas, Arkansas and Pennsylvania could satisfy 100 years of use at current demand levels….
“Natural gas is already muscling out coal as the primary source for new power plants. It can also be converted into transportation fuel, particularly for buses, trucks and taxis.”

What if demand doesn’t stay the same? (Probably a damn good bet that it won’t). Then what? How does transportation fuel conversion take place? How long does it take? How expensive is the process? How efficient? How easy is it to do? How much more gas would be consumed by those converted vehicles, and thus how much less would be available for all other consumption?

And while he’s correct in stating that domestic energy production creates the “potential” (that word again) for “hundreds of thousands of jobs”, wouldn’t a national effort to devote our research efforts, skills, manpower, and resources into alternative sources of energy (which will surely outlast declining supplies of fossil fuels) offer the “potential” for just as many jobs, if not many more—given how much of our infrastructure and industrial/transportation foundation will have to change to accommodate new energy sources?

Reasonable questions all, I’d like to think, but no answers at all in Mr. Kotkin’s article.

There’s also the inconvenient reality that the U.S. is a natural gas importer. We do not produce enough of it to satisfy our needs as is. We turn to Canada as our primary benefactor, but as its demands for natural gas increase (it’s also used in significant quantities just to assist in the production of that country’s tar sands), the less natural gas there is to satisfy Canadian—and American—demand. At some point, the math is not going to work.

Facts….

Gail the Actuary conveniently offered a wealth of information in another recent post that sheds a bit more light on those magical “huge natural gas finds” Mr. Kotkin finds so appealing. (The title of the post: “Don’t count on natural gas to solve US energy problems” offers a clue or two.)

“[N]atural gas is only about one-fourth of US fossil fuel use, so it would be very difficult to ramp it up enough to meet all of these needs.
“One issue is whether a rise in shale gas will mostly offset other reductions in natural gas supply. In Annual Energy Outlook 2011, EIA forecasts that shale gas production will increase from 23% of US natural gas production in 2010 to 46% of US natural gas production by 2035, but that these increases will mostly offset decreases elsewhere. Even with this huge increase in shale gas production, the EIA only sees US natural gas production increasing by an average of 0.8% per year between 2011 and 2035, and US natural gas consumption increasing by an average of 0.6% per year per year to 2035–not enough to make a very big dent in our overall energy needs.”

Thud.

Shale gas production, which is being touted as a door-opener for increasing natural gas production, has its own set of risks and problems. Water pollution from the fracking process employed to produce the resource, earthquakes (no joke; see this), apparently rapid decline in production levels, and the fact that shale gas is not profitable at current low prices are just a few of the negatives. Not much incentive for producers there….

Gail touched on the shale gas issues in her post, suggesting for one thing that increasing the percentage of shale gas in the overall total of gas production “will mostly offset decreases elsewhere.” And natural gas’s lower prices will have less appeal as prices rise—surely an inevitability as demand and production costs increase. Then what?

As for Mr. Kotkin’s “100 years” claim, Gail offers more of those damned facts in rebuttal (citing, as she did with all of her other facts, charts and other sources of official information and statistics. Don’t you just hate that? See this article, also.)

“US current consumption is about 24 trillion cubic feet a year. If we divide the ‘U. S. Future Supply’ of 2,074.1 TCF by 24, we get 86 years, which is the source of the statement that 100 years of natural gas supply is available. But it is not at all clear how much of this is economically extractable with technology that we have now, or will be able to develop in the future. If we exclude speculative resources, we are down to 61 years, assuming no growth in natural gas consumption. If natural gas use rises, we would exhaust those resources much sooner.
‘If we exclude both Speculative Resources’ and ‘Possible Resources,’ then the number of years at current consumption falls to 29 (but much shorter, if production ramps up sharply). The shale gas portion of this is about a third of the total, or approximately 10 years, at current consumption levels.”

Thud, again.

Mr. Kotkin does acknowledge the legitimacy of environmental concerns arising from oil and gas production as they compare to the risks now quite evident to all in the wake of the disasters in Japan:

“But compared with the existential threat of nuclear radiation, even potential oil spills and damage to water supplies from fracking shale might be regarded as tolerable risks for which we have considerable experience and technology managing with enhanced regulation.”

Permit me to introduce you to the right-wing of our federal government and the big money interests which largely dictates its agenda. “Enhanced regulation?” Seriously? From this narrow-minded, shortsighted group of legislators beholden to corporate America? This same group of “leaders” who by all indications have little regard for what their own (non-wealthy) constituents are calling on them to do? I’m not sure that relying on them for “enhanced regulation” is likely going to meet with much success, although there is no question that is absolutely necessary.

“The record shows that without effective government oversight, the offshore oil and gas industry will not adequately reduce the risk of accidents, nor prepare effectively to respond in emergencies.” [2]

Credit where credit is due however. Mr. Kotkin does add:

“Republicans, too, need to give up their ‘bests’— including the notion that no policy is always the best, usually a convenient cover for the narrow interests of large energy corporations. Allowing private corporations to unilaterally determine our energy policy makes little sense. After all, most of our key competitors — China, Brazil and India — approach energy not as an ideological hobby horse but as a national priority.”

He concludes with these observations:

“The time has come for both political parties to give up their ‘best’ energy options for the good. A green economy that produces millions of new jobs is a laudable goal. But the renewable sector cannot develop rapidly without massive expenditures of scarce public dollars. To fully develop these technologies, we need lots of money and time….
“It’s time to demand that our deluded, and self-interested, political class develops an energy policy based not ideology but on how to best guarantee prosperity for future generations of Americans.”

Drilling for more oil, or pursuing questionable practices to release shale and natural gas are fraught with their own set of risks and consequences. In truth, there are no energy policies that won’t require significant compromise, sacrifice, and expense. Weighing the advantages and disadvantages, together with the benefits and rewards is no easy, quick, or guaranteed strategy. If we wait until everyone is on board we’ll be having this same conversation 500 years from now.

But to insist that our energy policy must be to keep devoting “scarce public dollars” (and scare private ones, too) to resources on a steady path of decline, guaranteeing only more difficulties and hardships down the road, is an energy policy to nowhere. There’s no doubt that we have enough fossil fuel resources to last a good number of years (given oil depletion and increasing demand, the math makes the exact date irrelevant, and I’m not a seer). But they are resources harder to come by, more costly, and well on their way to soon being insufficient to meet the many legitimate demands and needs of an over-populated world. What’s the advantage in spending “money and time” on endeavors that will lead to a gigantic energy dead-end? How much more trouble should we be looking to create for ourselves?

Our priority—our focus—must turn away from fossil fuels now, while we still have enough available to help ease us into the process of transitioning away from those very resources. That is a task of unimaginable complexity and effort. Waiting for a better day is not a choice. That day has passed. Let’s not let too many more slide by in foolish pursuits.

Sources:

[1] http://ourfiniteworld.com/2011/02/14/is-shale-oil-the-answer-to-peak-oil/; Is “shale oil” the answer to “peak oil”? by Gail Tverberg – February 14, 2011
[2] http://www.infrastructureusa.org/deep-water-the-gulf-oil-disaster-and-the-future-of-offshore-drilling/; DEEP WATER: The Gulf Oil Disaster and the Future of Offshore Drilling – January 10, 2011