Bush ok's Gulf of Mexico Drilling

[Bill51]

Yes, the methods of extracting petroleum products from oil shale as funded by the US government (to the tune of $14 billion from 1978 to 1981) was an environmental nightmare of arsenic and other heavy metals, but the current in situ processes developed by Shell on the side (after the subsidies got out of the way) leave most of the bad stuff in place in the ground. A DoE study in May of 2001, shocked many at how clean the new process was while being able to be relatively economical. This was even more astounding when compared with the first US government analysis back in 1956, which basically ruled out the feasibility of oil shale recovery.

The Canadian tar sands program as it’s currently running is an environmental nightmare of strip mining huge tracts of wetlands and forest, but since Canada is uniquely the largest reserve of tar sand in the world they feel it’s worth tearing up their land for it. I often wonder if a non-subsidized program could have come up with a cleaner and more energy efficient method of extracting bitumen. In fact it’s the energy intensity of the process that is considered a major factor in Canada being completely unable to meet their Kyoto commitments (24% increase instead of a 6% decrease). After 30 years they have not recovered any of the wilderness or forested land they committed to reclaim when they sold their people on the program.

Many studies have been done on energy prices during the 80s and 90s, but the ones that most closely correlate with what I saw at the time indicate that when President Reagan pulled the plug on many of the Carter era subsidies to alternative energy sources that was a major contributor to the falling (or return to normal) of world oil prices. This directly led to the Black Sunday Exxon collapse in 1982, when they shut down their oil shale program, and was a foreshadowing to what would follow in 1986. The other act in 81 that started the oil glut was ending the 11 years of failed attempts to control oil prices through government regulation that began with the clean air act of 1970, overreaction to the OPEC embargo of 1973 with the Petroleum Allocation Act, the Carter energy and economic “malaise” era, and culminated with the Iranian revolution in 1978 and the ensuing war with Iraq. All of these added together to create decreased production because of uncertain profits, while making people willing to pay higher prices thinking we were about to run out of oil any day. When the President of the United States stands up in 1977 and states that the US will be out of oil within 10 years and we won’t be able to afford to import anymore oil even at over $100 per barrel, the world listens assuming he knows what he’s talking about and that is why oil in 1980 hit a record high we still haven’t come close to (in real dollars). Add in a collapsing global economy with the Soviet Union going slowly broke trying to keep up with SDI, the US recovering jobs faster than anywhere else in the world from the recession era of 1979, and you see that oil was just reacting to the rest of the world and adjusting to real markets not driven by fatalistic government subsidies and price controls.

FWIW: I like to prioritize hydrocarbon energy sources based on what I see as their overall environmental impact so my preferences of use and production methods is first to use offshore gas, then onshore gas, offshore oil, onshore oil, in situ oil shale, coal, and sand tar last until someone finds a way to extract it without strip mining.

 

[Green_Manelishi]

ah yes.. note my choice of weapon (and a snub-nosed subsonic round at that)

it was... you know ... irony

Stepping along at +2000 FPS, the .30-30 is not subsonic.

 

[lamont]

I've seen this remark twice now, so I wanted to jump in. There is no such thing as cold fusion*
[...]
* Ok, there is actually cold fusion. You have to produce a beam of muons (a very energy intensive process), slow them down, and get them to replace an electron in a hydrogen atom. Then two hydrogen atoms can get close enough to fuse into deuterium. The problem is that even at 100% efficiency in every step this uses (WAG here) at least 100 times as much energy as you get out.

dang it. i read the second sentence there, hit reply before i was even done with it -- thinking "i've got this guy!" -- and then you steal all my thunder with your footnote...

 

[lamont]

The Energy Policy Act of 2005 directed more research into oil shale and tar sands research recognizing that 62% of the world’s oil shale reserves are in the US. Already demonstration projects are predicting it could be competitive at prices as low as $30, but there can be huge cost swings in production based on specific mining locations that makes that number more theoretical than practical. The odd problem is that it takes a lot of water to mine and process oil shale, and many times the large fields are located in locations where water is scarce such as Colorado and even Israel. Ironically oil shale was a major source of energy back in the 1800s, but was quickly displaced by conventional oil drilling as it was much easier and cheaper to produce, but that it is expected to change in about 12-15 years when newer technology reduces oil shale production costs and crude oil costs continue to climb.

It doesn't matter how much is there or how affordable it is. How fast can you get it out of the ground? Currently the world uses a little over 80 million barrels a day of oil and with India and China ramping up the worldwide demand can increase by 1-2 million barrels a day per year. If you can't get 10 million barrels a day of shale production online in less than a decade it isn't going to matter.

 

[Bill51]

While it’s true that many technologies can’t be ramped up to full production contributing to the gasoline at the pump today, they still have a major impact on today’s energy economics. It’s no different than getting a permit to build a refinery today that won’t go online for 6 years has a capping effect on refinery costs at existing facilities. Amateur spot market investors notwithstanding, the major players in energy markets and futures are looking 15 years out as some guidance in how they value reserves today. One example would be if an oil producer thinks there is going to be a shortage in 10 years he may start investing in some expensive tertiary recovery plan for his wells today, which will drive his costs and what he expects out of his oil today up, but if he sees that he’s going to have to compete with cheaper oil from another source in a few years he may not make that investment right away.

 

[WarmWaterDiver]

What arsenic remains in the shale oil produced is still an issue with downstream refining. Shale oil typically is in the boiling range of light & heavy gas oils, the fraction of stuff heavier than diesel but lighter than asphalt. To have any energy efficiency and selectivity, catalytic processes are typically used to convert such materials to gasoline and diesel blending stocks, and heavy fuel oils. The arsene is still a poison to those catalytic processes, and must still be dealt with. I'm not sure your environmental ranking includes those effects and the disposal methods required downstream of the in-situ production facility. On the plus side, I understand arsene compounds were used as very effective pipeline corrosion inhibitors until the catalytic conversion processes took such a dominant role in petroleum refining, so i suppose some sort of pipeline life cycle cost could be credited - but the catalyst effects and disposal costs would still outweigh this by one to two orders of magnitude.

The political attraction of tar sands coming from a stable friendly neighbor cannot be minimized. The Chinese were at one time looking to fund a pipeline to the west coast for Canada to export such materials their direction. Someone will be willing to purchase the production.

One thing I've noted in your list is no ranking of foreign vs. domestic. Would you rank Venezuelan synthetic crude higher than Canadian syncrude in your list, since it's not produced from tar sands?

You've been around longer than I have Bill51, so I have to ask on your lack of mention of the Iran / Iraq war. What I recall of those years was lack of OPEC control of those nations as they funded their war chests, particularly near the end (mid to late 1980's). This depressed global pricing and paved the way for elimination of government subsidy of alternative energy exploration from what I remember, which I can see from your post also removes artificial price support for energy (and discourages conservation). Which was the chicken vs. egg from your perspective?

 

[Bill51]

Wow! You are making me think rather hard tonight. I’m not a petroleum engineer so I might have overlooked or misunderstood what I’ve heard and read, but the way Shell chills the area around their in situ process it captures much of the metals and arsenic at the perimeter of the field preventing most of it from being able to leach into ground water (and they are working on something else to help that), and the way they heated the oil shale underground a lot of it didn’t get pumped up to deal with on the surface. That’s not to say there is no problem with it, but it appeared to be addressed rather well.

I guess I simplified and normalized my preferences to American standards because anything that Chavez pumps scares me only because I don’t trust his safety or environmental standards, so in that way it might be that Canadian tar sand while not environmentally friendly by American standards could still be less harmful than a rig boss in Venezuela feeling pressure to keep drilling without a blow out protector or enough drilling mud onsite. I worry what will happen to environmental standards in Russia with Putin forcing BP to become a minority partner after trying to pick their brains in the beginning. Ironic that Russia used environmental blackmail to force that deal in the first place.

I did mention Iran’s war with Iraq, but from my memory it was rather price neutral in the long run and contributed to the price run up before 1981. They tried to flood the market or more correctly buy their way into the market with lower prices, but they were both so incompetent that they couldn’t deliver enough to make a major difference. We actually lost something like 10% of the world’s production. Saudi was the only oil producer to understand that rapidly escalating prices would ultimately curtail demand while encouraging non-OPEC exploration, and tried to bring prices down while also reducing production, and that went nowhere. It was in the mid-80s that Saudi basically told OPEC to take a hike and moved their prices to match spot prices. By the mid-80s non-OPEC production had exceeded the production lost due to the Iran/Iraq war and OPECs influence has been in decline ever since.

I see government subsidies for any energy program as ultimately discouraging conservation. If the feds pour money into solar or insulation tax credits, oil producers will try to drop prices to prevent a market slow down, and then the only people installing extra insulation are those in a high enough tax bracket to fully use the credits, and Joe on the street decides to spend his money on something else because energy prices came down – for a short time. Government subsidies in alternative energy essentially ended in 1981, with exceptions of a few programs that had long-term commitments. Remember that for every subsidy the government created, they did it at the expense of market forces in another energy sector whether it was the multi-tiered pricing structure that discouraged domestic exploration and drove American firms to buy higher priced oil from overseas, or in the windfall profit tax that discouraged exploration while artificially supporting higher energy prices to the consumer than what the market should reflect.

As a little background, I was a homebuilder in the 70s, and started building passive solar energy efficient homes in 1972 – before the first embargo. By 1977, when Carter took office there were many of us with established businesses doing rather well – and then Carter came up with the brilliant idea of solar tax credits. By 1980, myself and every solar contractor in our area got out of the business and watched the entire industry crumble around us. Prior to the tax credits people bought energy efficiency based on market decisions such as how long will I be in this home, do I have to use all electric or is natural gas available, or even how many hours a day will someone be home. Suddenly we had people making decisions on how to build a home based on the tax credit they would get, and the government guidelines were not based on real world but on what some paper pusher in DC thought was the ideal solar application in a one size fits all world. That brought every charlatan in the world into the business selling snake oil with tax credits, and those of us that didn’t qualify for tax credits had a difficult time competing with real long term economics against and instant windfall – during a time of 14% mortgages. Today there are still plenty of people who got burned on those fly by night solar schemes that wouldn’t look at a real energy savings solution based on their bad experience with solar/energy tax credit vendors.

 

[WarmWaterDiver]

Thanks, Bill51. It's nice to hear from someone who's 'been there'. The timing always seemed to me like the Iran / Iraq war had somehing to do with it. I remember a lightering job in 1987 with the fog rolling in too thick for the chopper to make it to the mother ship or back home, so we set down on a platform that was a gathering station for 11 natural gas wellheads. They put us up no problem - there was bunk space for 28, and only 5 hands on the platform by then, and two of those worked in the kitchen exclusively! WTI was around $10 a barrel then IIRC, and natural gas stayed between $2 and $3 per million BTU's for much of the 80's and 90's that energy driven revamp projects were very difficult to economically justify. If prices hadn't dropped so low, I think we would have more domestic production in fact - news articles were about over a third of Texas onshore production coming from stripper wells in the mid-1980's that didn't economically support running the pumpjack, so they were shut in and capped. Directional ('horizontal') drilling helped reopen some of this in the 1990's but the big second 'boom' for places like Giddings was short-lived.

I think the 'then' vs. 'now' on the shale oil arsenic issue has a lot to do with arsenic in the water phase (whether groundwater or water used in processing the shale to extract the oil), rather than a difference in arsenic content of the shale oil produced, but I'll need to read through some more stuff. Feel free to pop me a relevant link or two by PM please! The arsenic level of the oil produced may actually increase with less being present in the water phase during extraction.

Russian business tactics are always creative; they can take capitalism and environmental good citizenship and find an interesting way to put a new angle on the two! It's almost artistic.

There is little control the individual consumer can make regarding the origin of the petroleum used for the fuel purchased at the pump, but I think the political angles are evolving to approach the emphasis of environmental stewardship (and overall corporate citizenship) as these go hand in hand. I think simple supply stability in the current global picture will drive this for the present in the USA.

My old home town had a big research windmill on the outskirts, and had an average wind speed 3 mph more than Chicago. There was blue sky talk of offshore wind farms but all such efforts drew to a close during the 1980's, so I can sympathize with your solar housing experience.

 

[lamont]

While it’s true that many technologies can’t be ramped up to full production contributing to the gasoline at the pump today, they still have a major impact on today’s energy economics. It’s no different than getting a permit to build a refinery today that won’t go online for 6 years has a capping effect on refinery costs at existing facilities. Amateur spot market investors notwithstanding, the major players in energy markets and futures are looking 15 years out as some guidance in how they value reserves today. One example would be if an oil producer thinks there is going to be a shortage in 10 years he may start investing in some expensive tertiary recovery plan for his wells today, which will drive his costs and what he expects out of his oil today up, but if he sees that he’s going to have to compete with cheaper oil from another source in a few years he may not make that investment right away.

It may just be that its 2AM, but I don't follow you. I think we're talking about different things since you're looking at the value of reserves. I'm more concerned with the fact that if the worldwide demand is 85 million barrels a day at $60/bbl but the total worldwide pumping/refining capacity is 80 million barrels a day, that the price will need to rise until 5 Mbd of demand is priced out of the market. That's just supply and demand. Of course that'll produce an oil price shock which will cause aggregate global demand to drop which will drop the demand for oil below 85 million barrels a day, but the net effect will be that the inability to extract oil fast enough will cap the growth of the global economy. The only way out of it is to become more efficient or to use alternative energies. Oil shale means we don't run out of oil, but it doesn't stop major ripples through the global economy from reduced capacity out of the cheapest and easiest to pump oil reserves. And I've near heard of any suggestions where pumping from ANWR or the Gulf of Mexico or any other sources could provide more than about 1 Mbd about a decade out. That's way too little volume too late to have much of an effect. Its a nice thought, but we're still going to be dependent upon foreign oil and the decline in the oil fields in the middle east are still going to hit the US economy hard.

Plus the more carbon you pull out of the ground, the more carbon you throw up into the air. If we extract every last ounce of oil from every source possible and burn it for energy producing CO2 which we expel into the atmosphere we're going to do an extreme experiment in planetary climeatology which I would rather not be a part of.

So, its not going to make us energy independent, its not going to protect us against the economic effects of the future supply/demand curve for oil, and the more of it we extract and burn into the atmosphere the worse off we are in the long run. The focus needs to be on energy sources which do not produce excess carbon emissions, not on opening up new oil fields.

 

[Bill51]

If we don’t use our current and domestic future reserves as a shock absorber on energy prices there’s no way we’ll be able to afford development of any reasonable non-hydrocarbon alternative – plus domestic production royalties and taxes contributes over $8 billion per year to land and water conservation funds. Long before Howard Hughs Sr. invented the drill bit that opened up new sources of oil it has been American capital that has not only provided the energy for our standard of living, it has also been the innovator of new technologies to make energy use cleaner while holding a line on pricing.

I’ve never been one to dismiss how much impact small incremental changes in energy pricing can drive behavior or how small changes in supply can drive prices. I also believe that small steady changes will drive more effective policy and consumer habit changes than wild swings. A good example of this is what happened during Katrina/Rita to both consumer behavior and world energy prices. At the time the world was consuming 85 MBPD and pumping/refining capacity was around 86 MBPD, yet the markets went wild prior to and immediately after the storms even though the entire GOM production was less than 1.5 MBPD. The storms took an estimated total oil out of the market of between 35-55 million barrels depending on how you measure it, and the government made that up with 42 million barrels from the Strategic Reserves, yet we saw crude top $70 per barrel on speculation about what impact there would be on world markets. Market forces working as they should caused millions of Americans to cancel trips, cut down on unnecessary trips, and take other conservation (even if temporary) measures and there was never a world shortage.

Conservative estimates put ANWR reserves at 10.4 billion barrels and the ability to ramp up fairly quickly to 1 MBPD and sustain that for 30 years, so if taking 1.5 MBPD out of production for 30 days can cause a 15% increase in oil prices, I don’t see how anyone can claim that adding 1 MBPD for 30 years to the supply side of our oil production can do anything but stabilize prices. Oil traders didn’t wait for Katrina to hit before running the prices up, and they won’t wait until our new wells are online to bring the prices down.

Back to the original topic, what I like about the current GOM plans as signed is that we’re talking more about gas than oil, and there is more than enough gas that can be tapped quickly to offset a considerable amount of oil as industries have a sound economic basis for converting or using gas rather than oil whenever possible.