VIDEO:THE SECRETS OF OIL

There is a great debate going on as to whether we should open more oil drilling off the coasts of the United States.

What do you think?

We sh

ould drill fo

r new o..

We sh

ould only extract

n..

We sh

ould only extract

n..

We sh

ould not open any...

39%

22%

6%

33%1. We should drill for new oil

both on and off-shore in the US.

2. We should only extract new oil on US land.

3. We should only extract new oil off-shore.

4. We should not open any new drilling for oil anywhere in the US.

Off-shore Drilling

Off-shore Drilling

Off-shore Drilling

How Much Is There? Proven Reserves: Resource that we

know is there (90 % chance) AND we can extract it at current prices with current technology.

We can increase Proven Reserves by1) Finding new reserves2) Improvements in technology3) Changes in economic conditions

Note: We never totally extract all of the energy, it just becomes too difficult to recover after a while.

Unproven Reserves: We think that it is there based on testing/experience.

ORWe know that it is there, but it is too expensive to extract with current technology/economics.

World Proven OIL Reserves: 2011

Many experts believe thatCanada may actually havereserves as high as 2 trillionbarrels.

Iraq may have more than 360 billion barrels

The US may have an additional100 billion barrels in the Arctic.

How Long Will It Last ?Rate Equation

Start UsedQ Q

RateTime

Time Start UsedQ Q

Rate

This is really a bad approximation because it does not take into account changes in rate of use.

The demand for energy has been constantly increasing, so the rate equation time is probably too long, but still interesting.

Exponential Growth

Amount of growth depends on the rate of change of the amount with time.

Time

Amou

nt

Doubling Time In general, if our percentage growth per

unit time is P (%/unit time) then the time for our initial quantity to double is DT where:

70 %Doubling Time (DT) P

Example: If P = 10%/year, then70 %DT 7 years

10 %/year

Between 1960 and 1970, US energy consumption grew by 4.5%/yr. This would mean energy use would double in only 70/4.5 =15.5 years!

With a constant rate, if we double our reserves, we double their expected life. With exponential growth, doubling reserves will only add a short amount of time.

Obviously, exponential growth in energy demand CANNOT go on for very long.

Is It Really Exponential?Prices Matter

An important lesson from history is that energy prices matter a lot.

Before 1973, US energy consumption appeared to be growing exponentially at a rate of more than 4% per year. An exponential growth curve fit the data very well.

These statistics imply that energy growth should have been between 4 % and 4.5 % for many years to come. However, that turned out to be very, very wrong.

The graph below compares the exponential forecast (based on data from 1947-1973) with what actually happened. The exponential model predicted 88 quads more energy consumption in 2003 than there actually was, an error of 89% (186 quads predicted vs. 98 quads of actual consumption).

The simple exponential growth model looked good during the period before 1973 because energy prices were low and relatively stable. When prices rose sharply, demand dropped as energy users (especially in industry) began conserving energy.

Which of the following has the most impact on oil prices?

Oil Companies

World

Events

President o

f the Unite

d ...

Congress

25% 25%25%25%1) Oil Companies2) World Events3) President of the

United States4) Congress

Hubbert Analysis Works for just about any natural

resource. (Not just fossil fuels) Initially a new resource shows a

period of rapid growth. Easy to find, new markets, etc.

As high quality, easy to find resources are depleted, production will peak and then decline.

Hubbert Analysis In 1956

Hubbert predicted US oil production would peak in late 60’s or early 70’s.

It peaked in 1970.

Production will have a “Bell Shaped” Curve.

Table II-1. Projections of the Peaking of World Oil Production.

Projected Date of World Peak Production Source of Projection Background

2006-2007 Bakhitari, A.M.S. Iranian Oil Executive2007-2009 Simmons, M.R. Investment BankerAfter 2007 Skrebowski, C. Petroleum journal EditorBefore 2009 Deffeyes, K.S. Oil company geologistBefore 2010 Goodstein, D. Vice Provost, Cal TechAround 2010 Campbell, C.J. Oil company geologist

After 2010 World Energy Council World Non-Government Org.

2010-2020 LaHerrere, J. Oil company geologist

2016 EIA nominal case DOE analysis/information.

After 2020 CERA Energy consultants2025 or later Shell Major oil companyNo visible peak Lynch, M.C. Energy economist