Wednesday, December 4, 2013

Western Secession 2 - Liquid Hydocarbons

Liquid hydrocarbons as a means of energy storage are pretty amazing. They have high energy density — enough to make 14-hour non-stop intercontinental air flights possible. They are easy to handle — liquid at normal temperatures and pressures, easy to pump, and so forth. They're relatively safe — despite the energy content, the typical suburban garage has not only several gallons in their cars, but a gallon or two stored in a plastic container for lawn mowers and such. Combined with the ease of extracting sufficient quantities to meet global demand from naturally-occurring reservoirs over the last 100 years, it is unsurprising that liquid hydrocarbons became the transportation (and traction) fuel of choice for the last century.

I support a view of the future with declining oil availability. Granted, for almost as long as people have been pumping petroleum from the ground, there have been predictions that we will run out.  In 1883, Pennsylvania geologists were warning that Pennsylvania's oil fields were being rapidly depleted and there was "no reasonable ground" to expect large new discoveries. They were wrong about that, of course. Petroleum resources far larger than those of Pennsylvania were found in California and Texas and (much later) Alaska within the US, as well as numerous places globally such as the Middle East, Russia, and the North Sea. Nevertheless, there are reasons to believe in the declining availability of affordable petroleum in our future.

It is well established that production from individual oil fields eventually peaks and then declines. Replacing the oil output from a declining field requires finding and developing new fields. For example, US oil production peaked around 1971 when the great East Texas fields went into decline. Overall production increased somewhat when the Prudhoe Bay field in Alaska came online, but the total began to decline again once the decline in older fields exceeded the output in Alaska. The same thing is happening now with shale oil. The figure to the left is the Energy Information Agency's most recent forecast [1] for US shale oil production. The early ramp-on is fast enough to more than offset declines in older, more mature fields. But once the growth in shale oil production begins to level off in another three to five years, US total production will resume its decline.

For decades, US consumer demand for petroleum has exceeded US production. The difference has been made up by imports. An aspect of oil imports that doesn't get discussed enough is that it's a trade: the US can't import any more oil than the collective exporting countries are willing to provide. Three trends outside the US suggest that there will be much less oil available for the US to import in 25 years than there is today.  First, countries that used to be exporters have suffered through exactly the sort of decline the US has seen and been forced to start importing oil to meet their own consumer demand.  Second, countries that are still exporters don't have as much left to export because their internal demand is increasing faster than they can increase production. Third, developing countries that are oil importers are getting richer. The marginal value of an additional barrel of crude in China is higher than the marginal value of an additional barrel in the US, so China (among others) can offer higher prices for the declining oil available from the exporting countries.

Indonesia is a classic example of the first two points.  While their production remained relatively constant from 1975 to 2000, their exports declined as domestic demand increases.  By 2003, they became a net oil importer.  In 2009, they realized that they would likely never be an oil exporter again, and withdrew from OPEC.  It seems unlikely that there will be many new countries added to the list of oil exporters. The fundamental problem is that oil exploration today is occurring in areas where it is much more difficult and expensive to extract the petroleum: ultra-deep water (1,500 meters or more), tar sands, tight formations, etc. Offsetting production decline from today's mature fields requires finding the equivalent of another Saudi Arabia (exports around 7.5 million barrels per day) every few years. The world is an increasingly explored place, at least in terms of commercially-scaled oil reservoirs that are cheap and easy to produce; there simply isn't going to be an ongoing stream of new Saudi Arabias.

Finally, there are the alternatives to naturally-occurring petroleum: synthetics and such.  Processes for making gasoline and diesel from coal and natural gas have been known for a long time.  Cars can be modified to run on compressed natural gas.  Many writers give reasons that we shouldn't use synthetics: for example, that coal-to-gasoline results in much larger releases of carbon dioxide than production of gasoline from crude oil.  However, my argument is that the US can't switch to heavy use of synthetics because doing so would require enormous capital expenditures that the country is ill-prepared to make.  As a result, in 25 or so years the US will have a lot less liquid hydrocarbon fuel available to it.  In the next post, I'll discuss what I see as the probable consequences of that.

[1]  Many analysts think that the EIA's forecast is overly optimistic in the out years. The fundamental complaint leveled at the EIA is that it assumes either (a) producers don't run out of reasonably good places to continue drilling within individual formations such as the Bakken; or (b) decline rates of individual wells in such formations won't follow the pattern in the historical data we have now accumulated.  A simple example of the alternative, in which drilling stops and individual well declines follow the current experience, is shown here.

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