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Selling the Oil Illusion, American Style

Monday, November 14, 2011, 11:12 AM

"The task of the real intellectual consists of analyzing illusions in order to discover their causes." ~ Arthur Miller

US production of crude oil peaked in 1970 at 9.637 mbpd (million barrels per day) and has been in a downtrend for 40 years. Recently, however, there's been a tremendous amount of excitement at the prospect of a "new era" in domestic oil production. The narratives currently being offered come in the following three forms: 1) the US has more oil than Saudi Arabia; 2) the US need only to remove regulatory barriers to significantly increase production; and 3) the US can once again become self-sufficient in oil production, dropping all imported oil to zero.

Let's first take a look at over 70 years of US oil production.

The US is currently enjoying its second stabilization phase since the peak in 1970. (Daily oil production has rebounded from a deep hole in 2008, from below 5 mbpd to above 5.5 mbpd). The first stabilization period lasted for more than 7 years, from 1977 to 1985. While it did not reverse the overall decline trend, which had resumed by 1990, this was certainly good news, just as our current production increases are good news. But the production history laid out graphically here is instructive and gives a clear warning: It would be unwise to herald the recent uptick in domestic production with a "new era" headline. Deepwater drilling, Gulf of Mexico, and Alaska were all "new era" events in their day as well. Or so they seemed.

Now, three respectable publications have recently cast the advent of new oil extraction in America as a kind of miracle. And indeed, technologically, the refinement of hydraulic fracturing techniques -- first used to extract natural gas, and now used to extract oil -- is miraculous. But a technique such as this, although replicable and repeatable, will not change the fact that newer, unconventional resources are developed and produce oil at a much slower rate. One year after the Black Giant of East Texas was discovered in the early 1930s, it was producing just 1 mbpd. The US no longer has resources such as this to exploit. The history of US oil production over the past 40 years should make this clear.

However, this did not stop the Telegraph of London from making triumphant assertions in their October 23 piece:

World power swings back to America

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy.

The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d)," said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea. Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009. The US already meets 72pc of its own oil needs, up from around 50pc a decade ago. "The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity.

(Source)

The claims made here (or should I say the conjectures here), are completely over-reaching -- but worse, the data is completely wrong. This matters because the article was widely distributed and sustained a very popular position for several days on Twitter and in other media outlets. I have written extensively on the problematic nature of energy data that’s produced by the Energy Information Administration (EIA) in Washington and International Energy Agency (IEA) in Paris. So it’s not really surprising that the public, the average reader, cannot fact-check these numbers easily.

In Secrecy by Complexity: Obfuscation in Energy Data and the Primacy of Crude Oil, I explained how difficult it can be -- even for journalists -- to obtain a time series of commodity production and flows that is continuous, let alone understandable. For example, if one includes biofuels (which, of course, are not oil in any sense and do not contain the dense btu content of oil), perhaps one could claim that 2010 oil production in the US outpaced the rest of the world. But according to the EIA in Washington, 2010 saw China make the largest new contribution to world oil supplies at 277 kbpd (thousand barrels per day), followed by Russia at 199 kbpd, and then Canada at 153 kbpd. The United States? US oil production grew by an average 114 kbpd.

So in a world of global crude oil production currently running around 74 mbpd, we are asked to believe a new era has dawned for the United States on the back of an additional 114 kbpd? That would be funny, if it were not so ridiculous. Let’s also include the 2011 additions to US oil production, at 141 kbpd. Are you feeling excited yet? These are the volumes that will allow the US to re-conquer the world with new oil production, and wean itself off global oil imports? The New York Times is quite enthused about these “major developments,” as evidenced by this October piece:

New Technologies Redraw the World’s Energy Picture

This striking shift in energy started in the 1990s with the first deepwater wells in the Gulf of Mexico and Brazil, but it has taken off in the last decade as a result of declining conventional fields, climbing energy prices and swift technological change. The United States may now have the means to reduce its half century of dependence on the Middle East.

(Source)

Sigh. The New York Times has been selling that dream for several years now. Indeed, if you are old enough to have followed the presidential election cycle since the 1970’s, you’ll know that “energy independence” has been a standard, vague promise trotted out since the Carter Administration.

But let’s say the US did indeed want to become less dependent on foreign oil. How would the country achieve such a shift, if not through a huge increase in production? After all, the recent “rise” or stability in US crude oil production is made partially on the back of a steeper four-year production decline that carried into 2008, when the rate fell to below 5 mbpd. So far in 2011, US production of crude oil just about matches the rate last seen in 2003-2004, around 5.5 mbpd. Despite the hype, the supply side of this equation has not changed enough. Could we do something about the demand side?

So, now you know. The longest and deepest recession (actually a financial crisis and a depression) in the post-war period reduced oil consumption by 12.8%. The “miracle,” if you can call it that, of US oil independence lies not in the illusion that 5.5 mbpd of oil production can be lifted to wipe out 11.5 mbpd of oil imports. Instead, it lies in a further de-industrialization of the US economy, a huge reduction in miles driven on the nation’s roads and highways, and no doubt some energy efficiency.

Perhaps some of these are good things. Even very good things. But they are not unequivocally good things. To the extent that portions of the US economy that can shift to the power grid have done so in the past three years, for example, much of that new grid demand has been met by coal. But more broadly, it is not so much that the US is wisely and strategically conducting energy transition as a matter of policy. No, a whole tranche of the US economy has been literally kicked off oil, mainly due to the financial crisis and high unemployment, but also partly due to the inelasticity of demand in emerging markets. I would remind readers that 100% of the new demand for global oil since 2005, mostly coming from the non-OECD, has not been met by new supply. Instead, in a world of flat oil production, the resources for the developing world have come solely from a reduction of demand in the developed nations. Global oil supply is now a zero-sum game. Let’s stop litigating this fact.

Of course, no tour through the world of badly mangled energy data or energy optimism would be complete without noting the opinion of Dan Yergin. Interestingly, Yergin’s research group CERA has produced one of the best indexes of rampant cost inflation in the global oil and gas industry over the past decade. This is a key point that often eludes even the educated reader not familiar with the complexities of resource economics, and which was a ghosted irony in the New York Times article cited previously: The unconventional resources on which we now depend are complex and costly. Most important of all, they are slow. The tar sands are slow. Ultra-deepwater off the coast of Brazil is slow. However, this does not stop Mr. Yergin, who has been given free range once again to make vague, grand forecasts about future supply. In an October 31 piece in the Financial Times, he is quoted:

Pendulum swings on American oil independence

“Over the past couple of years, there has been a great U-turn in US oil supply,” says Daniel Yergin of IHS Cera, the research group. “Until recently, the question was whether oil imports would flatten out. Now we are seeing a major rebalancing of supplies.”

(Source)

It no longer amazes me to hear Yergin make such claims. U-Turn in US oil supply? A major rebalancing? Yeah, sure; whatever. This pabulum is, of course, not taken seriously by energy investors as a whole, and certainly not by some of the more notable hedge fund managers, who took it upon themselves to get out in front of oil depletion early last decade. Mr. Yergin is useful to a political complex that wishes to avoid the career risk of actually having to do something about our increasingly uneconomic transportation systems and the developed world’s dependence on oil. This is as true here in the States as it is in Europe. Indeed, why take the political risk of telling Americans they should choose to transition away from automobiles, when price will start to do some of that work regardless?

Department of Transportation: VMT - Vehicle Miles Travelled, 12 Month Moving Average on All Highways, (in Billion Miles):

Continuing with our theme, the Telegraph of London was completely wrong when it claimed that the US now meets 72% of its own oil needs, up from 50% a decade ago. Worrying to the cause of mathematical accuracy in journalism, that 72% figure nearly describes the amount of crude oil the US must import -- which is currently running at 68% of US consumption. Moreover, given the peak and decline in VMT (vehicle miles driven), we once again confront the myth that the US economy is recovering and has new oil supply to do so. This is a nasty combination of normalcy bias, which plugs in to the wish for resurrection and the plain old fallacy of composition. A very small amount of new oil production has been blown up beyond all scale and proportion. To the Arthur Miller quote in the header of this essay, the question is: Why has the media presented this illusion now, to the American audience?

We need to examine even more closely, however, the actual prospects for lifting US oil production, were we to imagine a kind of War on Oil Depletion in the United States. (No, we're never going to extract the kerogen deposits of the Green River Formation, despite the investment-opportunity (!!) spam in your email). Environmentalists probably believe for example, especially in the wake of their victory this week on the XL Pipeline, that the US is unlikely to ever adopt a full-on, drill, drill, drill policy for oil. I think that's a mistake, and I would point to a country like Australia, which, despite a new tax on carbon, has increasingly become a single, vast territory of resource extraction.

Unfortunately, our oil transition effort has only just begun. It's still taking place only in very minor fashion, at the margin. The balance of this decade must be tackled first, and it will be felt as an ongoing battle between oil prices bumping up against a ceiling as economies repeatedly fail to recover.

In Part II: How To Postion for the Next Great Oil Squeeze, I also show the specific data on US Imports of crude oil, and why Canada, with its very slow-flowing tar sands, is hardly going to save the US, XL pipeline or not. Most importantly, I will explain how oil depletion will likely mean quite a profitable future for America's independent oil and gas companies and address the key questions: how can the average investor position themselves for the next great oil demand shock? and when will it happen? All within the context of overall, energy-induced economic decline in the OECD, as resource depletion of oil -- which remains the master commodity and the primary energy input to the global economy -- means that a higher level of economic volatility will be the new normal until energy transition unfolds more fully.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

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20 Comments

Travlin's picture
Travlin
Status: Diamond Member (Offline)
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Posts: 1322
Good information

A well written article Gregor with a lot of useful information.  I was not aware of a media push to declare oil is plentiful.  Your data and logic refute that convincingly.

Travlin 

crisvalor's picture
crisvalor
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WATCH THE DIFFRERENCE BETWEEN FOW AND STOCKS

What is important to take in account is the  limited nature of fossile energy reserve and its destruction when used. Even if there are new technics developped to add ressources, and in that field give time to manage change the depletion is running and nobody knows exacly what is the limit but there is a limit . So in any scenario it is necessary to change the approach to devote the remaining stocks to type of uses tha does not destroy the asset or limit its destruction.

The sense of scarity brings a lot of insame reations that hurt the people that are the base of the society and by their number bring wealth much more than may a potent head of a big firm. In managing the change ahead we prvent wealth destruction. As the Christ say important are the children and the weaks as they understand the necessity.

 

DaveDave's picture
DaveDave
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But Why?

Much as I can believe the US has big problems meeting its energy needs, and thus there will be problems ahead that deserve proper discussion, I don't see the quantitative guts (numerical facts) of such an argument in the article above - the potential of the new alternatives seem to be dismissed without proper analysis.

The argument seems to be that just because the unconventional energy (oil and gas, and coal) sources haven't been turned on as quickly as Black Giant was, they won't be useful in the future, but there is no reason given as to why not. Isn't that like saying that a man watching open-cast coal mining would argue that because it takes a while to start an underground coal-mining industry it will never make a meaningful contribution? [New machines needed, new discovery techniques etc etc, all very similar.]

I think that to prove such a statement (the new can't be a substitute) we need some figures that show that even if you take time to drill as many new wells as you want and give the economy some time to rebalance to use a higher proportion of NG (which of course it will) and be a bit more efficient there is some reason that it can't work. Maybe there is some cost-of-energy (GDP limiter) or ERoEI-based reason relied on, if so please could we be told. And obviously this new supply then wouldn't last forever, but again we need some facts.

Another un-supported statement is that the kerogen won't play a part. This blanket statement would seem to require either reliance on some physical law of thermodynamics, or economics, but we are not told which.

So, please could we have some reasons so that there can be a debate about their validity?

Also, even though I accept that oil is a much more convenient fuel than gas or coal, the fact is that in some situations they are good substitutes and are used.Thus charts that only show oil consumption (as a proxy for energy it appears) always strike me as being incomplete truths. From my point of view it makes good sense that the consumption of an expensive, convenient, energy source would stop rising if an alternative cheaper source is available (although I'm not for one moment saying this is the only factor).

jturbo68's picture
jturbo68
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EroEI is the answer
DaveDave wrote:

Much as I can believe the US has big problems meeting its energy needs, and thus there will be problems ahead that deserve proper discussion, I don't see the quantitative guts (numerical facts) of such an argument in the article above - the potential of the new alternatives seem to be dismissed without proper analysis.

The argument seems to be that just because the unconventional energy (oil and gas, and coal) sources haven't been turned on as quickly as Black Giant was, they won't be useful in the future, but there is no reason given as to why not. Isn't that like saying that a man watching open-cast coal mining would argue that because it takes a while to start an underground coal-mining industry it will never make a meaningful contribution? [New machines needed, new discovery techniques etc etc, all very similar.]

I think that to prove such a statement (the new can't be a substitute) we need some figures that show that even if you take time to drill as many new wells as you want and give the economy some time to rebalance to use a higher proportion of NG (which of course it will) and be a bit more efficient there is some reason that it can't work. Maybe there is some cost-of-energy (GDP limiter) or ERoEI-based reason relied on, if so please could we be told. And obviously this new supply then wouldn't last forever, but again we need some facts.

Another un-supported statement is that the kerogen won't play a part. This blanket statement would seem to require either reliance on some physical law of thermodynamics, or economics, but we are not told which.

So, please could we have some reasons so that there can be a debate about their validity?

Also, even though I accept that oil is a much more convenient fuel than gas or coal, the fact is that in some situations they are good substitutes and are used.Thus charts that only show oil consumption (as a proxy for energy it appears) always strike me as being incomplete truths. From my point of view it makes good sense that the consumption of an expensive, convenient, energy source would stop rising if an alternative cheaper source is available (although I'm not for one moment saying this is the only factor).

 

DaveDave,

I think this article assumes some level of understanding or ERoEI and also the fact that the economy tanks whenever energy costs get too high, creating a cycle of exploration and backing off which then constrains supply again in the future.

If you hang around here at CM or over at the OilDrum.com , you can study plenty of articles analyzing ERoEI and its relentless effects.  It sounds like you have a basic understanding of ERoEI.

Regarding Kerogen,  I  feel like the author was dismissng it due to the poor ERoEI and slow flow rate.

Welcome Aboard,

John

 

 

 

pipefit's picture
pipefit
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oil to ng ratio

The ratio of the price of a barrel of W. Texas crude oil to the price of 1000 cubic feet of natural gas, chartable at stockcharts.com with symbol

$WTIC:$NATGAS, is currently at about 28:1.  But the btu equivalence of the two fuels, in these quantities is 7:1.  So either natural gas is selling for 1/4 of what it should, or crude oil is 300% too high.

So you can see that the pricing mechanism is completely broken, and we really can't infer much, other than that price fixers have taken over the oil market.

The obvious question is, how will this imbalance between oil and natural gas be resolved?  Lower oil, or higher ng?  Probably depends on what happens with the economy.  Any sort of economic slowdown, and crude oil will drop to near the 7:1 ratio with ng, as it did in early 2009, when the economy and the world's financial system was on the ropes.  That would put crude below $28/bbl.

TPTB seem to be aiming for the inflationary outcome, however, so eventually I would expect ng prices to move up while crude consolidates, perhaps for many years.

 

 

 

Adam Taggart's picture
Adam Taggart
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Part 2

DaveDave & pipefit -

In Part 2 of this analysis, Gregor addresses kerogen's shortcomings directly, as well as his thoughts on the coming price direction for crude. 

Part 2 is reserved for our enrolled members. No worries if you decide not to enroll at this time, but wanted folks to know that these good questions haven't gone unaddressed by the author.

cheers,

Adam

 

Quercus bicolor's picture
Quercus bicolor
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re: NG vs. oil.
pipefit wrote:

The ratio of the price of a barrel of W. Texas crude oil to the price of 1000 cubic feet of natural gas, chartable at stockcharts.com with symbol

$WTIC:$NATGAS, is currently at about 28:1.  But the btu equivalence of the two fuels, in these quantities is 7:1.  So either natural gas is selling for 1/4 of what it should, or crude oil is 300% too high.

So you can see that the pricing mechanism is completely broken, and we really can't infer much, other than that price fixers have taken over the oil market.

The obvious question is, how will this imbalance between oil and natural gas be resolved?  Lower oil, or higher ng?  Probably depends on what happens with the economy.  Any sort of economic slowdown, and crude oil will drop to near the 7:1 ratio with ng, as it did in early 2009, when the economy and the world's financial system was on the ropes.  That would put crude below $28/bbl.

TPTB seem to be aiming for the inflationary outcome, however, so eventually I would expect ng prices to move up while crude consolidates, perhaps for many years.

The chart below (found at http://en.wikipedia.org/wiki/Energy_in_the_United_States) shows that most oil is used in transportation with most of the rest is used in industrial processes.  Only 5% is used for residential (mostly heating.)

First, let's look at transportation.  The article states that the breakdown of oil in transportation is:

  1. 61% gasoline fuel (mostly cars?)
  2. 21% diesel fuel (trucks, heavy equipment, rail)
  3. 12% aviation

I'm guessing the remaining 6% is mostly heavy oils used in shipping.  Converting the auto fleet (gasoline) to NG would require a huge capital investment in distribution systems and new vehicles.  Yes, it might happen, but it would take decades.  The same goes for diesel with some unknown fraction unsuitable to NG due to the long distances and large amounts of fuel consumed.  Aviation and possibly shipping are also unsuitable for NG use.

I'm not sure about industrial processes (chemical production, oil refining, metal smelting, etc.), but I'm guessing that many are either unsuitable for NG or involve large capital costs to convert.  Does anyone else have more knowledge here?  I'm assuming that given the price difference, anyone who can convert has already or will soon.

Residential heating use of oil would involve capital expenditures too (gas furnaces, new gas lines) and I bet much of the use is in rural areas that NG lines can't reach economically.

So there you have it.  It's possible to have a huge difference in equivalent prices between NG and oil, because NG is not easily substituted for oil.

DaveDave's picture
DaveDave
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Adam, thanks, unfortunately

Adam, thanks, unfortunately that would be yet another $30 sub, so thanks for the insight, but can't take it up, well unless you are feeling generous and want to copy that piece to me (I am intrigued as some already claim to have the energy and water use down to economic levels, maybe this is an environmental issue, but there again there are UG options).

As Pt 2 is entitled "How To Position..." I assumed it was going to look at consequences, not further develop the premise.

But does Pt2 also answer the question as to why the unconventional oil and gas can't be seen as a substitute for the imports, because as I see it we have an unsupported statement of fact by someone who might be relying on incomplete data / tech info etc and thus underestimate the potential to extract both oil from unconventional reserves, and the unrecoverable oil from conventional reserves; or maybe they have a completely different reason for the assertion. But so far I'm unconvinced so see no benefit in pt2.

DaveDave's picture
DaveDave
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John, Hi

Thanks, re keogen, bit confused here as it doesn't have a flow rate, let alone a slow one you mention as the obstacle, it is waxy, you have to cook it, there are various methods, ex and in-situ.

Yes well I know that high oil costs result in a falling GDP and that can play out in different (unpredictable) ways in terms of the size of the oscillations I expect. But this still requires consideration of how much the requirement for liquids will have changed in say 15 years from now, and thus how much gas might be get around that. Are you saying that GM has already stated he is relying on ERoEI for his dismissal of domestic US/NAm supplies, or that an assumption?

Mark_BC's picture
Mark_BC
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steveyoung wrote: Converting
steveyoung wrote:

Converting the auto fleet (gasoline) to NG would require a huge capital investment in distribution systems and new vehicles.  Yes, it might happen, but it would take decades.  The same goes for diesel with some unknown fraction unsuitable to NG due to the long distances and large amounts of fuel consumed.  Aviation and possibly shipping are also unsuitable for NG use.

Hi Steve,

I believe that it is quite easy to convert diesels over to natural gas. You could also do it with your regular car, you just have to make a few modifications. I think Delhi made a big transition to CNG for its scooters which has really cleaned up the air pollution. And we already have an extensive distribution network for natural gas. The only significant barrier is storage. You can compress it to 3000 psi which requires lots of energy and a big heavy storage tank, or you can liquify it to minus 140 or something, which I think requires less energy, but also needs a refrigeration system in your car. It's all do-able. I think that a few years ago natural gas was fairly expensive compared to oil which is why it wasn't really economical to convert over but now it should be. There will always be a price difference between oil and the other fuels because oil is the easiest to handle and it can be made into many more things, the question is what is a reasonable price differential.

Quercus bicolor's picture
Quercus bicolor
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Posts: 456
re: NG conversion
Mark_BC wrote:

Hi Steve,

I believe that it is quite easy to convert diesels over to natural gas. You could also do it with your regular car, you just have to make a few modifications. I think Delhi made a big transition to CNG for its scooters which has really cleaned up the air pollution. And we already have an extensive distribution network for natural gas. The only significant barrier is storage. You can compress it to 3000 psi which requires lots of energy and a big heavy storage tank, or you can liquify it to minus 140 or something, which I think requires less energy, but also needs a refrigeration system in your car. It's all do-able. I think that a few years ago natural gas was fairly expensive compared to oil which is why it wasn't really economical to convert over but now it should be. There will always be a price difference between oil and the other fuels because oil is the easiest to handle and it can be made into many more things, the question is what is a reasonable price differential.

Thanks for the correction. I bet, though, that without a serious promotion plan or a serious oil shortage, most people will not retrofit their vehicles.

Gregor Macdonald's picture
Gregor Macdonald
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Kerogen

DaveDave, I would concur with some of the initial comments downthread, which refer to my assumption of some level of knowledge regarding the multi-decade research into kerogen extraction, at scale. The study of this history takes some time, is rather technical, though the conclusions from the industry are rather clear.

I can see how my remarks on this topic can seem rather dismissive. I could certainly write a whole post exclusively on the topic. I will tell you a brief story, however.

At the 2006 ASPO conference in Boston I watched an excellent presentation from Raytheon on the extraction of kerogen. I was still "somewhat" new at that time to the topic. And was fortunate to be sitting at a table of petroleum engineers. I knew of the deposit in the Green River Formation, and frankly, I was concerned that if it could be extracted at scale and economically, then the rise in oil at that time could be in jeopardy.

But, what I did not know and would soon learn is that Shell had been experimenting on the deposit for decades. I also didn't know that the deposts were diffuse--i.e. widely dispersed. But most of all, I had no idea that to extract the kerogen the earth in which they were found would have to be heated to temperatures over 600 deg F--not for days, but for weeks, possibly months. I was of course already quite familiar with in-situ tar sands production and initially I thought "OK, maybe this is surmountable."

it's not surmountable. Raytheon was looking at the creation of "theoretical liquids" (Liquids that had not been invented yet) that could aid in the cooking process. Shell for decades had/has been able to extract kerogen at a small scale. But, as so often is the case in physical world resource extraction--this process does not scale. The boundary(Ies) are so wide that no one has figured out how you would actually build the machine or machines or infrastructure to cook, and collect the kerogen.

In part II of the essay I actually talk about the nuclear option. But of course, as anyone who has looked at US kerogen will tell you, once you start theorizing a nuclear solution as your heat source you have gone so far astray from the economics of the deposit that it is pointless, if not frankly comical.

Hope this helps. People are of course free to disagree on the economic recoverability of US kerogen. But, I would offer this advice: one would have to add to the 30+ years of work done by Shell engineers and other scientists who of course started work on this issue long before most of us here even obtained our university degrees. :-)

G

Damnthematrix's picture
Damnthematrix
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Might not be as easy as you think........

Can You Convert to Natural Gas?

 

Are you considering converting your car or light truck to run on compressed natural gas (CNG)? Besides being less expensive on a gasoline gallon equivalent (GGE) basis, CNG is cleaner burning and, unlike petroleum, doesn't come from unfriendly places. However, finding and operating a natural gas vehicle (NGV) is more challenging in the U.S. than in most of the rest of the world, where about 8 million light duty NGVs are in operation.

The only light-duty NGV sold by an original equipment manufacturer here is the Honda GX. All others are retrofitted installations for select vehicles that use GM's 6.0-liter engine and Ford's 4.6, 5.4, and 6.8-liter engines. Drivers in other countries have many more choices. One of the challenges for CNG engine system manufacturers in the U.S. is the time and expense to achieve certification for its conversion systems - as much as $200,000 or more per engine family. That severely limits our choices. Non-certified retrofit systems, allowed in other countries with less strict vehicle emission and safety rules, are sold here on the Internet.

Strict U.S. EPA rules cover the manufacture, sale, and installation of alternative fuel conversion systems. Even more stringent California Air Resources Board (CARB) rules apply in California and other states that have adopted these rules. These regulations do not allow consumers to install retrofit kits themselves. EPA considers non-certified installations as representing "tampering with a federally approved emission control system," an act punishable by a substantial fine.

Plus, EPA and CARB certified engine conversion systems are not sold to untrained or unapproved installers. There are only four SVM (Small Volume Manufacturers) of retrofit systems offering EPA certified systems - BAF Technologies, Baytech Corp., FuelTek Conversion Corp., and Impco Technologies - and only two of these are CARB certified. See www.ngvamerica.org/pdfs/marketplace/mp.analyses.ngvs-a.pdf for a listing of light duty conversions.

Before converting a vehicle to CNG you really must make sure you can conveniently refuel it. While there are about 800 CNG fueling locations in the U.S., not all are open to the public and one may not be located near you. If the fueling infrastructure is sparse in your region, this could become an important consideration if you plan to make a trip out of your locale where CNG fueling stations might be difficult to find. This is less of a problem for bi-fuel conversions that can run on either natural gas or gasoline. A listing of CNG locations can be found at www.eere.energy.gov/afdc/fuels/natural_gas_stations.html.

There is another option. You can get around the lack of public refueling by installing a home fueling device like the FuelMaker 'Q' and Phill, also from FuelMaker. These are 'time-fill' fueling devices that don't store CNG, but rather compress and refuel directly from a household's gas supply. With both of these devices fueling is done overnight or whenever a vehicle is idle.

The cost to convert to CNG can range from about $12,500 to $22,500 depending on the vehicle, engine, size of CNG tanks needed, and who does the converting. The greatest expense is for the CNG tanks, and the more capacity and number of tanks, the more expensive the conversion. While this may be daunting for many consumers, fleet users - like taxi companies and delivery services - can often justify the expense because of the fuel savings amortized over many miles. The FuelMaker 'Q' refueling appliance costs just under $10,000 plus installation and the Phill is priced at about $4500 plus installation.

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Gregor Macdonald's picture
Gregor Macdonald
Status: Silver Member (Offline)
Joined: Oct 7 2011
Posts: 130
The BTU Discount in NG Compared to Oil

Pipefit you are certainly correct that a million btu can be obtained at a 75% price discount to a million btu in oil--at current prices. This extraordinary gap however is explained better, however, by the following three factors.

1. North American NG remains a land-locked resource and is priced way, way below global LNG prices which go for as much as $15.00 per million btu. Until export facilities are completed at Kitimat, BC, and/or Sabine Pass, LA the price of N.A. NG will price not off worldwide demand, but, demand here.

2. That oil as a liquid fuel remains the primary energy source for the world's economy. Not only does oil price instantly and globally 24/7/365 but oil production globally has been up against a ceiling for 6 years.

3. The built environment--all the cars, roads, buildings, ships, cities, towns, suburbs, construction practices, manufacturing--that we constructed since WW2 depend on oil, and cannot be "retrofitted" easily to suddenly run on NG. I actually highlight this probem in a previous piece published here:

http://www.peakprosperity.com/blog/great-american-false-dilemma-austerit...

Best,

G

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
the energy trap
Gregor Macdonald wrote:

3. The built environment--all the cars, roads, buildings, ships, cities, towns, suburbs, construction practices, manufacturing--that we constructed since WW2 depend on oil, and cannot be "retrofitted" easily to suddenly run on NG.

PRECISELY what I have been saying here since I started posting  three years ago.......  we have built the current infrastructure, one brick at a time, as and when it was needed, at a time energy was both plentyful and really really cheap.

Today, we need to replace/duplicate the whole lot, very quickly, using energy that is getting both scarcer and dearer.......

Read this: http://physics.ucsd.edu/do-the-math/2011/10/the-energy-trap/

and: http://physics.ucsd.edu/do-the-math/2011/11/peak-oil-perspective/

DaveDave's picture
DaveDave
Status: Member (Offline)
Joined: Nov 15 2011
Posts: 4
Kerogen et al

Gregor, Thank you for taking the time to respond. Kerogen was more the subsidiary part of my comments (see my first comment http://www.peakprosperity.com/comment/123311#comment-123311), but let's deal with that first....

Yes Shell has been trying their technique for a while (after my degree it seems, not that it or subsequent experience gives me background knowledge in this area), but it is not the only one, I'm not thinking nuclear either, so to dismiss kerogen I would have thought that all the techniques would need to dismissed, not just one or two. I'd love to be able to give you some definitive figures for what can be achieved so that you in turn could argue against them, but no one who claims to have made it work (well, economically in the US, there is certainly an operating industry elsewhere) has published a FS for a production scale plant, let alone built one, so there is smoke and mirrors to consider with pilot-project claims ($30 - $45 /bbl). One company does claim to have sold a licence though. Maybe these claimed successes will only work with a very small proportion of the available oil shale, that could be the ambiguity.

What also "irked" me, and more so, was the apparent dismissal of all other unconventional oil and gas as an import replacement option without any explanation, let alone references. I would be grateful if you could add some reasoning behind this premise so that your assertions can be considered based on the evidence.

Cheers

Gregor Macdonald's picture
Gregor Macdonald
Status: Silver Member (Offline)
Joined: Oct 7 2011
Posts: 130
Unconventional

fyi, the essay in no way dismisses the growth of unconventional oil supply in the US. In part II this is acknowledged more fully. The main point of the essay is as follows: "net" growth in US oil production is quite small. The indisputable and largest factor in what is being sold as "oil independence" is the severe decline in oil demand. My assertion that a fallacy of composition approach has been taken by the media, in which a very small upward tick in US oil production has been blown up to mean US oil independence, stands. As someone who has watched this growth in oil production from the Bakken, I allow that more is coming in future years.

You will notice I use the word "scale" alot. The most common misunderstanding of the energy-economy space comes from the misapplication of the proper scale and context. That's exactly what I have corrected in my essay.

G

Mark_BC's picture
Mark_BC
Status: Gold Member (Offline)
Joined: Apr 30 2010
Posts: 429
Yes that Energy Trap article

Yes that Energy Trap article put the problem into perspective. Quite sad actually, when you think about what could have been if we had made this transition a few decades ago when we had the excess energy and time to make the changes. Now we don't. We could have had a prosperous future with no energy shortages ... ever essentially, if we had used that oil to build solar panels and transition the infrastructure over to electric drive. Of course it wouldn't have been a perfect transition, but the US would have still been able to limp along in the event of a cessation in foreign oil imports. But ... we shouldn't lament on the past, we have to deal with the situation that has been handed us by decades of atrociously bad decisions by our leaders.

I find it interesting to consider what will likely happen if and when the monetary system collapses, so that the dollar is no longer the world's reserve currency, and then the US would have to essentially halt its oil imports. The only product it would have as an export to compensate for oil imports would be agricultural products. Then the US will have about 1/4 of the oil it currently has. And the other thing about these fracked wells is that they drop off in production very quickly, especially in the first year, with production after 5 years only a fraction of initially. So this is going to create some major oil scarcity in the not too distant future when these alternative oil sources inevitably slide down their own Hubbert Curve. This is going to create tremendous problems for prices of things because agriculture will be more difficult, transport will be more difficult, and the monetary system which depends on perpetual growth will be collapsing. Everything will be falling apart. It's easy to fall into a doomsayer mentality but really when you look at what's likely to happen, it's not pretty. Maybe something surprising and good will happen but prudent planning should consider the likely bad outcomes.

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
the energy trap
Mark_BC wrote:

It's easy to fall into a doomsayer mentality but really when you look at what's likely to happen, it's not pretty. Maybe something surprising and good will happen but prudent planning should consider the likely bad outcomes.

A pessimist is a well informed optimist.......!

Mike

rockerme4u's picture
rockerme4u
Status: Member (Offline)
Joined: Oct 1 2010
Posts: 1
Is it really peak oil

I have a little trouble believing that we have peak oil on the U.S. Output data as the main data to verify peak oil.

The fact remains that the 1990's gave us cheaper oil. The market was priced by demand and a good economy for all.

Now the market is priced by leverage, liquidity from the FED and the greed of the powers to be who want to get returns.

I think there is plenty of oil vs. minerals in which land access for mining is rarer than places to drill.

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