Site icon Fabius Maximus website

An urban legend to comfort America: our massive reserves of unconventional oil

Larry Kummer, Editor

Summary:  The bad news is that much of the good news about energy is wrong.  Repeated so confidently by so many for so long, these fallacies have become a major obstacle to our preparation for peak oil.  This post examines one such fallacy:  that the world has massive reserves of unconventional oil, and that those will prevent peak oil.

This post substantially expands to my replies in a discussion with M. Simon, lifted from the comments to “A powerful perspective on the candidates for President of the US“.  M. Simon posts actively on his blog, Power and Control, and at Classical Values– an influential libertarian weblog discussing politics, current affairs and pop culture (to which the Instapundit frequently links).  M. Simon is an engineer, and involved in some cutting edge projects.

I gave a broad but brief reply to his comments in “Discussing geopolitics with the famous M. Simon (of the “Classical Values” blog)“.  This post focuses on one specific subject that he mentions:  reserves of unconventional oil sources.  M. Simon reiterates his views in his post of 29 August:  “How Much Oil Is There?”

Other chapters in this series:

I.     Our massive reserves of unconventional oil.
II.    We’ll run crash programs to solve peak oil, just as we mobilized for WWII.
III.   Demand creates supply, by raising prices.
IV.   Oil is Oil, even if it is not oil
V.    Demand creates supply, from new technology.

Contents

  1. M. Simon’s comments
  2. What are Unconventional oil sources?
  3. Comparing conventional and unconventional reserves
  4. Considering two unconventional sources:  Bitumen (aka “oil sands”), Kerogen (aka “shale oil”)
  5. Cost of mining oil sands
  6. Reserves are complex, and not just for oil.  How much coal do we have?
  7. What happens when urban legends are disputed?
  8. Conclusions
  9. Where to go for more information about Peak Oil

M. Simon’s comments

Comment #10:

There is no energy problem. There is a restraint of trade problem: cartels. You break cartels by bringing more product on to the market. We are 20 to 30 years away (due to technology and logistics issues) from making a serious dent in the necessity for oil.  What can America do if Congress and local Democrats get out of the way? Drill, mine, refine.  At this point in time energy is a political problem not a geological one.  Where do you folks get your misinformation?  BTW the most misunderstood discipline in war and industry is logistics. You know – arm chair generals study battles, real generals study logistics.

Comment #13

Two trillion barrels of oil shale in America. 1.5X that in tar sands in Canada. The Canadians are producing at around $15 to $20 a bbl.  And that doesn’t even count the amount we might have in the continental shelf which is not well explored thanks to Congress.  Yep. Not enough oil. I’m convinced.

Fabius Maximus replies

2.  What are nconventional oil sources?  They include, among others:

They are often described as a bounty that will save us from peak oil.  This is almost certainly wrong.

Peak oil is a transitional phase as production shifts from conventional oil sources to unconventional sources.  Unconventional reserves are immense.  They are, in effect, low quality petroleum “ore”; conventionals represent high-quality “ore.”  There is, of course, more low-quality than high-quality ore.  However, they are not directly comparable as Simon implies.  Let’s look at M. Simon’s comments, line by line.

M. Simon says:  “Two trillion barrels of oil shale in America. 1.5X that in tar sands in Canada. … Yep. Not enough oil. I’m convinced.” 

Unconventional sources differ from conventional petroleum in three ways. 

  1.  Their extraction costs — either initial capital outlays or operating costs (or both) — are usually far higher.  
  2.  Their production flows tend to be lower.   Nothing like the massive flows from the great fields of Texas and Saudi Arabian. For example, by 2020 Canada’s bitumen mining might produce 5 million barrels/day — not enough to offset the reduced production from Mexico’s supergiant Cantarell and other North American fields.
  3.  They often require far larger inputs of energy for their extraction and refining than conventional sources.  For example:  heavy oil, bitumen, and kerogen all must be mined, heated, and hydrogenated to produce useful products.

Unconventional sources are valuable, and will play an increasing role in our global oil supply.  But their reserves, flows, and costs cannot easily be compared to the ample and cheap conventional fields now being sucked dry.  That is the missing element in these euphoric stories told by M. Simon and so many others.

“All unconventional oil needs time to be produced in great quantity, no matter how much effort is made. It is not possible to have a baby in a month with nine women.”
— Jean Laherrere, A-team oil expert (from a DOE internal energy briefing paper, August 2007)

This also applies to “crash programs” hoping to develop new energy sources.

3.  Comparing conventional and unconventional reserves

Unconventional reserves are not easily comparable to conventionals. Gross numbers of barrel-equivalents have little meaning. Numbers on a net BTU basis (net after extraction costs), would be more useful, but still misleading.  That is because reserves of unconventional energy resources mean little.  Most unconventionals are production-constrained, not reserve-constrained, due to their combination of high capital costs, operating costs, resource requirements (e.g., energy, water) and environmental impacts (each has a different mix of these).  Also, they require longer to scale-up than conventional sources (time is money).

An analogous situation between rate and “reserve” appears with water. The planet’s surface is covered with it (approximately 71%) and to great depths, yet we have “water shortages.” If the same approach of those advocating large oil reserves reserves meaning “no problem” was applied to water, how could we ever have a water shortage? However, it’s not in a usable form and much effort has to be expended to treat it for suitable use.
— Comment posted at The Oil Drum, 25 October 2006 by “Starship Trooper” (a chemical engineer)

4.  Considering the two unconventional sources that M. Simon mentions

(4a)  Bitumen (aka “Oil sands”)

From Wikipedia (this article also links to some good sources):

Tar sands is a colloquialism for what are technically described as bituminous sands, and commonly known as oil sands or (in Venezuela) extra heavy oil. The sands are naturally occurring mixtures of sand or clay, water and an extremely dense and viscous form of petroleum called bitumen. They are found in large amounts in many countries throughout the world, but are found in extremely large quantities in Canada and Venezuela.

Oil sands are mined and extensively processed (requiring major energy input) to become a liquid fuel, in no way comparable to a field like Ghawar. It has taken 20 years to get Alberta’s output to 1 million b/day; their goal for 2020 is 5 million b/day — which might not be feasible due to resource limitations (water, natural gas) and ecological impacts. None of these are “political” limitations in any meaningful sense.  

The capital invested, and planned to be invested, is staggering.  Canadian companies spent close to $9 billion on oil sands capital investments in 2005. Currently, there are close to 35 projects in the planning or expansion process in oil sands. Canada’s NEM said in their November 2007 report that “capital costs for adding integrated mining and upgrading capacity, to come on in the 2010-2011 timeframe, are estimated to be in the range of $C 80,000 to $100,000 per flowing barrel” and aprox. $C 80 billion will be spent over the next decade to boost tar-sands output from the current 1.3 million barrels a day.  This report also lowered their forecast for 2015 output due to rising costs and regulatory uncertainties, from their 2006 forecast of 3 million barrels/day to 2.8 million barrels.

Update:  Costs are rising rapidly, with estimates of $80 – $100 oil required to justify investment in new projects.  See these two articles for details:

  1. “High costs squeeze oil sands“, Financial Post, 5 September 2008 — “Break-even price jumps 31%.”  Now aprox $85/barrel.”
  2. “UBS says new oil sands projects need pricey crude“, Reuters, 19 September 2008 — New projects need $100+/barrel oil to turn a decent profit.

For more information on this see the following studies of the oil sands industry.  They provide balanced looks at the challenges and costs of expanding production in Alberta.

  1. “Canada’s Oil Sands Resources and Its Future Impact on Global Oil Supply“, Bengt Söderbergh, Uppsala University, January 2005 (105 pages). 
  2. “Canada’s Oil Sands – Opportunities and Challenges to 2015“, Canada’s National Energy Board, June 2006 (85 pages). 
  3. “Canadian Oil Sands: A new force in the world oil market“, US Congress Joint Economic Committee, 26 June 2006 (14 pages, good maps)
  4. “Canada’s Energy Future“, Canada’s National Energy Board, November 2007 (155 pages) — Scenarios out to 2030

(4b)  Kerogen (aka “shale oil”)

We do not yet have a commercially-proven method of extracting oil from “shale oil” (kerogen).  Commercially-proven means more than economics.  The engineering must work reliably on a large scale, with acceptable environmental impacts, and the available inputs (esp water).  We are not yet there.  I believe the largest plant is that of Fushun Mining Group in China, scheduled to produce 7,400 barrels/day in 2008 and 14,000 b/day at some point in the fuure (source).

From Wikipedia (an excellent article, with links to the sources used):

There are hundreds of patents for oil shale retorting technologies. However, only a few dozen have been tested in a pilot plant (with capacity 1 to 10 tonnes of oil shale per hour) and less than ten technologies have been tested at a demonstration scale (40 to 400 tonnes per hour). As of 2008, only four technologies are in commercial use, namely Kiviter, Galoter, Fushun, and Petrosix.

Once the engineering is proven by operation of a commercially feasible plant, it will probably take roughtly a decade to scale up production (building progressively larger plants) to a meaningful fraction of global oil use. “Shale oil” might be part of a solution to peak oil, but time and money will be required to find out. Then more time will be needed to put this technology into play. It’s not magic. Most estimates show that decades will be required to perfect and scale-up extraction and refining of these reserves — assuming the many technical problems can be overcome.

For more information see:

  1. Wikipedia on shale oil and shale oil extraction
  2. “Shale Oil – the elusive energy“, Walter Youngquist, Colorado School of Mines, October 1998 — An excellent introduction to the geology and history of shale oil.
  3. the Congressional Research Service report on Shale Oil dated 13 April 2006 (32 pages)

5.  Cost of mining oil sands

M. Simon says:  “The Canadians are producing at around $15 to $20 a bbl”

I do not know what Simon means by this.  The key — and obvious — aspect of most unconventional sources is that today they are more expensive than conventional oil (with a few exceptions, such as recycled waste vegetable oil or meat).   In the past 5 years growth in demand has been met by expensive alternative sources, which has pushed up the price of oil.  When unconventional sources become less expensive than conventional oil, we will have left the Age of Oil (the third age of humanity) for a new era.  This will happen, eventually.

As for Simon’s statement, the companies themselves state much higher operating costs.  For example, on 29 July 2008 Canadian Oil Sands Trust forecast operating costs of $32/barrel for 2008, plus $14.50 in royalties to the resource owners (in Canada, the government) for a break-even point of about $46.50 a barrel.   This does not include capital costs on the massive investments they have made, which pushes the break-even numbers even higher.

6.  Reserves are complex, and not just for oil.  How much coal do we have?

America’s coal reserves are far less than most people have been led to believe.  We have mined most of the dense, high BTU coal.  We are mining the remainder of the good stuff.  We have vast reserves, but some large fraction of this might have the BTU content of Kitty Litter.  Too little research has been done on these reserves.  For more about this, see these reports:

  1. “Coal:  Resources and Future Production“, Energy Watch Group, March 2007  (47 pages, PDF)
  2. “The Future of Coal“, B. Kavalov and S. D. Peteves, Prepared for European Commission DG Joint Research Centre Institute for Energy (JRC IFE),  February 2007
  3. “COAL OF THE FUTURE (SUPPLY PROSPECTS FOR THERMAL COAL BY 2030-2050)”, Energy Edge Limited, Prepared for the European Commission – DG Joint Research Centre Institute for Energy (JRC IFE), February 2007
  4. “Coal:  Research and Development to Support National Energy Policy“, National Academies, June 2007 — Summary. The full copy is aprox $40. 

Here is the key paragraph from the last report (#4):

“Present estimates of coal reserves – which take into account location, quality, recoverability, and transportation issues – are based upon methods that have not been updated since their inception in 1974, and much of the input data were compiled in the early 1970s. Recent programs to assess coal recoverability in limited areas using updated methods indicate that only a small fraction of previously estimated reserves are actually recoverable. Such findings emphasize the need for a reinvigorated coal reserve assessment program using modern methods and technologies.”

7.  What happens when their urban legends are disputed?

Here is a gentle paraphrase of an email discussing my review of his work, reprinted with M. Simon’s permission:

The thing lacking in most people discussing the issue is:

  1. Not an engineer.
  2. Not studied war sufficiently.
  3. Ignorance of history.
  4. Ignorance of logistics.
  5. Too invested in Shrinking Media memes.
  6. Too utopian. 

8.  Conclusions

Belief in the ability of our vast reserves of unconventional sources to save us from peak oil is an urban legend, in the sense of “widely dispersed misinformation” that meets an emotional need — in this case, reassurance.

M. Simon is a respected figure on the Internet, a reputation gained one post at a time over the years.  This is a requirement for passing on urban legends, so that people take his words seriously.  This brings us to the reason for posts like this, other than public education about this important issue.  I believe that for the Internet to fullfil its promise we need to use it better.  We must be more careful what we write.  We must attempt to hold each other to a reasonable standard of accuracy.  We are all in this together.

9a.  For more information about Peak Oil

Reference pages about other topics appear on the right side menu bar, including About the FM website page.  Of special relevance to this post:

Some posts about unconventional and alternative energy sources:

  1. Links to articles and presentations of some A-team energy experts , 11 November 2007
  2. The most dangerous form of Peak Oil , 8 April 2008
  3. The three forms of Peak Oil (let’s hope for the benign form) , 23 April 2008
  4. The world changed last week, with no headlines to mark the news, 25 April 2008
  5. Fusion energy, too risky a bet for America (we prefer to rely on war) , 4 May 2008
  6. Peak Oil Doomsters debunked, end of civilization called off , 8 May 2008
  7. When the King of Saudi Arabia talks about oil, we should listen , 2 July 2008
  8. Red Alert: the Saudi Princes have annouced the arrival of Peak Oil , 11 July 2008
  9. Good news about oil, but for our grandkids – not us , 14 July 2008
  10. The secret cause of high oil prices , 6 August 2008
Exit mobile version