By James Conca | Forbes | March 2 ,2017
Oil is more plentiful than you can imagine. And we keep figuring out easier and more economical ways to get it out of the ground.
In 1938, the famous geologist M. King Hubbert came up with the concept of peak oil, which is defined as having extracted half of the recoverable, conventional oil reserves. After that, oil production declines and cannot keep up with growing demand as the population continues to rise.
We used to think about Peak Oil like this- the reserves are finite, we know where they are and how long they will last, and we will start running out soon. But with recent technological innovations, we keep finding new oil deposits that are now recoverable and a peak won’t happen for a century or more. Source: Association for the Study of Peak Oil and Gas (ASPO)
In Hubbert’s time, most of the conventional oil reserves had already been discovered. Hubbert went on to predict that U.S. production would peak in 1969, and it did appear to peak in 1970. World reserves were supposed to peak around 2010 (see figure).
However, about 20 years ago, the industry really leapt forward on the technologies to find oil and to extract it. Particularly fracking.
This changed everything.
BP’s Spencer Dale summed it up nicely, “For every barrel of oil consumed over the past 35 years, two new barrels have been discovered.” And this shows no sign of slowing down any time soon. Peak oil has probably moved out a hundred years or more.
While we talk about decreasing our fossil fuel use, it’s easy to forget that humans find it really hard not to use what they have a lot of. And we have a lot of oil. And gas. And coal. In fact, the United States has more oil, gas and coal together than any other country in the world.
Fossil fuels are deposits of hydrocarbon materials in the earth. The conventional types are petroleum or crude oil, coal and natural gas. These deposits form from the organic materials in bodies of long-dead organisms trapped in accumulating sediments, and buried for geologic time.
For petroleum, these were primarily marine organisms such as plankton deposited over the last 600 million years, although most of the petroleum left formed between 65 and 2 million years ago.
For coal, it was plant material primarily from forests deposited during the Carboniferous between 350 and 270 million years ago before microbes had developed that could breakdown lignin, the real hard parts of wood.
Fossil fuels form when these organic materials are heated and pressed as they are buried deper in the Earth. Natural gas consists of the volatile components coming off of petroleum, mainly methane (CH4) but also some ethane, propane and butane. Conventional oil and gas are rarely found at the original site of formation. Coal does not migrated from its original site of deposition.
Because petroleum and gas are fluid and less dense than rock, both migrate laterally and vertically through more permeable rocks until they are trapped beneath dense impermeable rocks that have been folded or faulted into an advantageous shape for trapping. Petroleum and gas are extracted from these conventional traps, or reservoirs, through wells drilled from the surface.
However, unconventional deposits are primarily those where the oil and gas could not migrate to conventional traps, but are stuck in the very tight and tiny pores and fractures in these tight rocks, mainly shales and tight sandstones, or are not very fluid like heavy oils and tars. The ability to seriously exploit these unconventional reserves did not exist practically before 2000.
Think of conventional versus unconventional oil like jelly donuts versus tiramisu (see figure). Drilling into conventional sources is like sticking a straw in a jelly donut – the petroleum is trapped in a large single formation that just flows out under pressure.
Drilling into unconventional sources like oil and gas shale is quite different, more like tiramisu – the petroleum is in many layers that have to be individually tapped using horizontal drilling and fracking methods to open up the rock.
Saudi Arabia has a bunch of really big jelly donuts. The United States has lots of tiramisu, plus some pretty good jelly donuts as well. But we keep finding more tiramisu.
Hydraulic fracturing, or fracking, of these rocks has allowed us to recover gas and oil from these tight rocks, and horizontal drilling, as well as drilling many-directional strings from a single well, have allowed pinpoint targeting of these deposits, making recovery economic. If the crude is think and tarry, and won’t flow at all, like the Alberta tar sands, it must be removed by using heat, steam or solvents and mixed with more fluid crude for transport.
Unfortunately, the environmental cost of unconventionals is even greater than for conventional sources.
World oil and gas reserves are estimated in four ways:
1) those that are economically recoverable (this is what is used most often), also known as proven reserves,
2) those that are technically recoverable (we think we could recover these in the future),
3) total or in-place reserves (the total amount of oil and gas we know of but know we can’t get it all out yet), and
4) Unknown reserves (those we do not know about yet, primarily under ice sheets).
We still only use the first two to estimate global oil reserves, and so they keep changing as we develop new technologies and find new unconventional reserves.
Surprisingly, access to so much oil does not mean the price will go down or stay down. The price of oil is political and is set by the big players, particularly by the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, in a way that maximizes profits and controls supply and demand.
Too much oil on the market means the price drops and oil-producing countries don’t make as much money as they want to. Too little oil on the market means the price skyrockets and people begin to use less oil, become more efficient and move towards non-petroleum sources like electric vehicles. Bad for oil-producing countries
So it is a tightrope walk for oil producers.
As you would expect, these new technologies, and the flood of unconventional sources, have caused some political and economic disruptions. Oi prices had been about $100/bbl for several years running up to 2014. But as shale oil began flooding the global market, the price began to fall in 2014. Usually, when that happens, OPEC cuts production to get the prices back up.
Instead, Saudi Arabia initiated an economic oil war against the United States by refusing to cut production in November of 2014. This was an attempt to drive U.S. shale oil producers bankrupt and slow the flow of North American shale oil onto the global market.
In fact, OPEC increased oil production further, which drove oil prices down even more, eventually dropping to about $30/bbl in 2016, a price at which shale producers can’t even break-even.
Initially, this oil war made the U.S. shale oil industry leaner and meaner as the big guys like Exxon bought out the small guys going bankrupt. But eventually, even the big guys had to decrease shale oil production, and even some conventional reserves have been closed down.
So the oil war seems to have worked out for the Saudis and OPEC. According to Chris Helman of Forbes, the Saudi’s tactic has brought a halt to the shale boom and has also potentially scared off a whole generation of exploration into the deepwater and arctic. “75% of America’s drilling rigs are in mothballs and fracking crews have been tossed to the wind.”
Oil prices are back up over $50/bbl and holding steady.