Climate change or no climate change, crude production is going up
spectacularly
If you are at all concerned about
the effect of the consumption of fossil fuels on climate change, brace
yourself. It is inevitably going to grow dramatically, and soon.
By 2020 – just eight years,
according to a little-noticed research paper publikshed in June for the
UK-based energy company BP by Harvard University’s Leonardo Maugeri, the world
will be producing 49 million more barrels per day of crude and natural gas liquids
than it is today.
Peak oil, that point when the
world reaches its maximum rate of extraction and production begins terminal
decline, apparently is nowhere on the horizon, according to the 86-page paper,
produced for Harvard’s Belford Center for Science and International Affairs and
titled Oil: The next Revolution.
The global implications of
Maugeri’s research are frightening. Will Hickey, a Fulbright professor of
energy and human resources and associate professor of management at Solbridge
International School of Business in Daejeon, South Korea, pointed out in a
YaleGlobal article carried in Asia Sentinel on Oct. 12 that arctic ice is
melting and altering global weather, with seas rising and wildfires increasing,
and governments are simply ignoring the signs. A progressive tax on carbon
emissions is absolutely essential, climate scientists say, but no governments
are willing to dare the political fallout from instituting one anywhere.
The American environmentalist and
journalist Bill McKibben, writing this month in Rolling Stone magazine, pointed
out that May was the 327th consecutive month in which the temperature of the
entire globe exceeded the 20th-century average, the odds of which occurring by
simple chance were 3.7 x 1099, “a number considerably larger than the number of
stars in the universe.”
Maugeri is hardly blind to the
implications. Indeed, he writes, “A revolution in environmental and
emission-curbing technologies is required to sustain the development of most
unconventional oils – along with strong enforcement of existing rules. Without
such a revolution, a continuous clash between the industry and environmental
groups will force the governments to delay or constrain the development of new
projects.” There seems to be no impetus for any such revolution, however, as
both McKibben and Hickey argue. Instead, there is a wholesale campaign on the
part of every country on the planet to find more fossil fuel resources and burn
them. And they seem to be exceeding far beyond expectations. Fears at the turn
of the century that fossil fuel production would be in terminal decline appear
to be unfounded.
Maugeri acknowledges that his
analysis could be subject to a significant margin of error, brought on by a
possible new worldwide recession, a drastic retraction of the Chinese economy,
a sudden resolution of the major political tensions affecting a big oil
producer, or a collapse of the price of oil to below US$70 per barrel for
benchmark Brent crude, the price at which most new technologies, like shale oil
recovery, are viable.
However, the Internattional
Energy Agency's mostr recent Mid-term Report on oil through 2017, while less
willing to forecast in such specific terms, indicates that so-called
unconventional oil in oil shale is growing significantly in North America. The
forecast expects aggregate oil supplies to increase by 9.3 milliion barrels per
day through 2017, with about 40 percent of liquids growth coming from North
American oil sands or light tight oil production.
Maugeri writes that: “This oil
revival is spurred by an unparalleled investment cycle that started in 2003 and
has reached its climax from 2010 on, with three-year investments in oil and gas
exploration and production of more than US$1.5 trillion.” Fossil fuel
production, he argues, is in for an unprecedented upsurge, with capacity of
110.6 million barrels of production per day, up from 93 million bpd in 2011.
But production is changing.
Hydrological fracturing, horizontal drilling and oil shale exploitation are
taking over from traditional deep well drilling. The shale/tight oil boom is
not a temporary bubble but rather the most important revolution in the oil
sector in decades, Maugeri writes.
While Saudi Arabia will continue
to lead the world in both reserves and production, production is shifting back to
the west, with interesting political implications. “This is a novelty, because
three out of four of these countries are part of the western hemisphere, and
one only – Iraq – belongs to the traditional center of gravity of the oil
world, the Persian Gulf.”
That raises the possibility that
the Western hemisphere could return to its pre-World War II status of
theoretical oil self-sufficiency, and the United States could dramatically
reduce its oil import needs. Over the next decades, the growing role of these
so-called unconventional oils will make the Western hemisphere the new center
of gravity of oil exploration and production.
The US in fact has the world’s
second highest reserves after Saudi Arabia, followed by Russia. After Iraq,
which is fourth, Canada and Brazil are fifth and sixth, with China seventh. All
will have more capacity by 2020 than they have today. The four countries
showing the highest potential in terms of effective production capacity growth
are, in order, Iraq, the United States, Canada, and Brazil.
Only four of the current big oil
suppliers – those with more than a million barrels per day of production
capacity – face a net reduction of their production capacity by 2020, Maugeri
writes. They are Norway, the United Kingdom, Mexico and Iran. For the latter
two, the loss of production is primarily due to political factors. All other
producers are capable of increasing or preserving their production capacity. In
fact, by balancing depletion rates and reserve growth on a country-by-country
basis, decline profiles of already producing oilfields appear less pronounced
than assessed by most experts, being no higher than 2 to 3 percent on a yearly
basis.
“The most surprising factor of
the global picture, however, is the explosion of the US oil output,” the report
notes. “Thanks to the technological revolution brought about by the combined
use of horizontal drilling and hydraulic fracturing, the US is now exploiting
its huge and virtually untouched shale and tight oil fields, whose production –
although still in its infancy – is already skyrocketing in North Dakota and
Texas.”
The Bakken/Three Forks tight oil
formation in North Dakota and Montana, could become as big as big as one of the
Persian Gulf producers. There are more than 20 big shale oil formations,
especially the Eagle Ford Shale, where the recent boom is revealing a
hydrocarbon endowment comparable to that of the Bakken Shale. Most of that
shale oil is profitable prices ranging from US$50 to $65 per bbl, well below
current prices.
Obstacles remain that could
significantly reduce the US shale output, among them the inadequate US oil
transport system, its refining structure, the amount of associated natural gas
produced with shale oil, and environmental doubts about hydraulic fracturing,
which is coming under increasing fire from environmentalists for groundwater
pollution and other problems.
However, the analysis notes,
after considering the risk factors and the depletion of currently producing
oilfields, the US could produce 11.6 million barrels per day of crude and
natural gas liquids by 2020, making the country the second largest oil producer
in the world after Saudi Arabia. Biofuels could push up overall capacity to
more than 13 million barrels per day, representing about 65 percent of current
US consumption.
“Oil is not in short supply,” he
concludes. “From a purely physical point of view, there are huge volumes of
conventional and unconventional oils still to be developed, with no “peak-oil”
in sight. The real problems concerning future oil production are above the
surface, not beneath it, and relate to political decisions and geopolitical
instability.”
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