Sunday, February 04, 2007

How Much Are You Willing To Pay?

Shell Oil conducted a Town Hall in Seattle, Wa. recently, which I learned about at The Oil Drum.

You may have noticed that folks like to point out the tar sands and tar shales as absolutely huge repositories of oil, so no worries and Happy Motoring well into the future. Actually these are respositories of bitumen and kerogen, respectively, which can be processed into an oil substitute. It is a far more difficult task than drilling conventional wells. But Kheris! you may exclaim, there's a trillion barrels of oil in that shale. The very well may be, and so what? says I.

Why am I unimpressed by all that 'oil'? Well, the intrepid souls in Seattle's Peak Oil Awareness group, who attended the Town Hall and have a discussion thread about it, kept pushing the Shell executives and one of them, cleatisman posted this eye-opener, emphasis added by me:

The Shell executives do openly admit that the cheap oil is near gone. But what they won't admit to is how much each of these alternatives will cost to the average consumer. The executive who runs the aviation fuels for Shell told me that Oil Shale becomes worthy of production at $80/barrel. And they won't invest large amounts of capital until a barrel of oil does average $80/barrel for at least three years. Furthermore, this person refused to discuss the actual production rate possible with Shale oil. This is concerning since its cousin, Tar Sands in Canada, are already running into production limits due to water and heating constraints.

Consider two things here:

1 - Price. We aren't at $80/barrel yet, and keep in mind that Shell is leasing one of the 3 test sites for extracting kerogen from the oil shale out west. It sounds like they already understand what is economically feasible. Once the testing is over I wonder if the $80/barrel will still be their benchmark. My money says higher. That $80 (or higher) has to be consistent for 3 years. If oil goes to $80 it won't be stopping at $80 and Shell will be working that shale like beavers building a dam, but it will be way too late. Wanna hazard a guess about gasoline prices?

2 - Production flows. This is vitally important. Consider that the world consumes ~84 million barrels a day of oil, of which 25% is attributable to the US. If we have a trillion or so barrels of oil equivalent in the shale that is great. If the best we can do is extract and process 1 million barrels a day, which is 5% of current usage, the fact that a trillion barrels is available is not meaningful. Especially as other fields get capped as they are exhausted.

Peak Oil signals the start of the production slide. The amount of oil produced goes into permanent decline. Having a trillion barrels of oil in shale will not save us from the changes we will need to make.

3 comments:

The North Coast said...

Matthew Simmons remarked recently that he felt that oil was much too cheap and the $300 a barrel was the 'true' price, i.e., the price that reflected the true cost of extracting and refining whatever oil remains.

If the oil industry finds a way to make it halfway economical to extract from tar and shale, the environmental cost will be catostrophic.

Biomass, also, comes with enormous and unaffordable costs. Namely, how many people in our own population, not to say the third world, will be reduced to starvation as farmland is diverted from food production to fuel production. Keep in mind that we will need much more farmland in the future to produce the same amount of food because we have been dependent upon the ultra high productivity of factory farming with petroleum-based fertilizers.

In other words, we will need 3X as much land to produce a third as much food, but we will have only half as much land because so much will be dedicated to producing plant matter for biomass and ethanol.

I notice that the oil situation is a total non-issue among most of our presidential aspirants as well as our local leaders. They would rather talk about Global Warming, which is vague and hard to put a timetable on. I know it is real and will be a disaster compounding the disaster of declining oil supplies, but politicians are more comfortable with it because the ramifications are still open to debate.

The ramifications of a sudden, sharp shrinkage in the energy supply is not debatable. It will be a megadisaster that will kill tens of thousands of us, including people who would seem to be well situated at the moment.

People like us.

Kheris said...

I believe Global Warming is understood to be underway. At issue is the "tipping point" when we can no longer stop the train, or slow it down. If the ice sheets in Greenland and the Antarctic go, then "tipping" has been reached and there is nothing to do but learn to live with the effects. Reviews of the IPCC report just released suggests that in the name of consensus it is far too conservative and things are worse than it reports. That is driving the discussion about when the "tipping point" will occur. Concerns about an ice-free Arctic point to mid-century. We may have some time left, I don't know.

Personally, I think the notion of becoming less dependent on foreign oil is Bush-speak for Peak Oil. He knows it's coming, he simply won't call it by its name. If he did, how would the public react?

I think Peak Oil and the "tipping point" will occur in close proximity, althought I think it likely that Peak Oil will get here first. Some refinement on Simmons' announcement on peak indicates he may have been referring to crude and condensate. There is also some question as to whether he was referring to a logistical peak, vs a geologic peak. Betting money appears to be on logistical for All Liquids, which means we aren't done there yet. The thought now is that the All Liquids peak will be 2010-2012, or slightly later.

In any case, Jim Ginderske wants to do a disaster plan for Chicago, which he mentioned ever so briefly at the Loyola Park forum. I think any such plan needs to look at the Portland Peak Oil Task Force report for guidance on the issues that need addressing. Whether economic and social disruptions are initiated by Peak Oil or global climate change, we still need to manage the risks to the city, its citizens and its infrastructure, while identifying and acting on polices and processes that will mitigate said risks.

Kheris said...

Intended to say policies and processes.

Time for bed.