Petroleum’s end game, Part 2

May 09, 2019 by Denis Pombriant

Part 2

Part one of this series is also available on this site.

 

Much of the global community still labors under the premise that our energy supply comes from fossil fuels almost exclusively and when we need more energy, we simply drill more holes in the earth. Unfortunately, though, “Drill baby drill,” doesn’t automatically mean “Find baby find.” As a matter of fact, we haven’t found new oil reserves anywhere on the planet since 2003. Today drillers are concentrating on extracting small deposits in tight rock formations in oil fields they already know about.

Hydraulic fracturing and directional drilling are the most useful and successful techniques used in this type of extraction. All that would be fine except for several important issues even beyond pollution.

  1. The oil recovered through fracking comes from small deposits that can be exploited quickly meaning that the industry has an insatiable appetite for fresh sources of fracked oil.
  2. More fracking and more drilling are more expensive than finding a large deposit and pumping the oil for years or even decades. Under normal circumstances those increased costs should be reflected in the price at the pump but they are not.
  3. As a result, fracking doesn’t pay for itselfand money from Wall Street chasing boom times and big profits is keeping the industry afloat. The oil industry is becoming less and less profitable.
  4. As a result, energy from other sources like renewables is becoming more competitive, not to mention cleaner, than carbon-based fuels.

It wasn’t supposed to be this way

The glide path for fossil fuels called for converting from carbon dense fuels like coal to natural gas which contains a great deal of energy but contains less pollution-creating carbon. Gas is also considerably less costly than coal. Gas comes from wells drilled deep into the earth and piped to the location where it is consumed. Coal needs to be mined either via the conventional method of digging it out of the ground or the more modern, and controversial, approach of mountain top removal and excavation. Then it needs to be moved hundreds of miles by rail. All of that is rather expensive given the alternatives now making their way to market.

The free market is determining the fate of coal not any politicians or environmental groups. A good example of the challenge is the Navajo Generating Station in Page, AZ. In 2017, an article in the Washington Post  announced NGS was closing at the end of 2019 though the plant’s useful life extended decades into the future. The reason for the premature closure was economics. The 2.25 GW generating station was being out-competed by natural gas and renewables.

But petroleum is different. Isn’t it?

Petroleum is having a moment similar to coal but our dependency on petroleum will take much longer to change, a situation with its own set of issues. While fracking is undoubtedly successful at bringing more petroleum to market, it also loses money, lot of money. According to many sources and reported in Desmogblog.com, “Since 2007 the oil and gas industry has lost $280 billion betting on the shale boom, which was made possible by fracking and Wall Street financing.”

So coal and oil are increasingly unprofitable. But unlike coal whose replacements are taking their places in the economy, petroleum’s replacements have a longer path to travel and less time than most people think. We’re just at the beginning of the electric vehicle era and all it means including ramping up several industries. Not only do manufacturers have to produce the vehicles, which is beginning, but other companies need to scale up charging networks so that cars can be charged when parked almost anywhere. A whole generation of mechanics also needs training.

The charging issue represents a chicken and egg situation. Before people buy electric cars they’ll likely need assurances that they won’t get stranded if their batteries run down. Charging overnight at home might be a given but charging networks in parking lots is essential. If you’d like to get really expansive, why can’t a car get its energy from the road? Something for another time.

The good news is that charging is a free market problem. However, government program to provide low interest financing might be useful to engage the market, but it’s not mandatory either. The initiative will need to come from many private businesses that will employ thousands of people to build, operate, and maintain the facilities and it will come because there’s money to be made.

Replacing the car fleet

How long might it take to replace the current fleet of internal combustion powered cars is an important question to ask if you’re planning on saving the planet. Average car ownership is now less than two years according to Tootle, a company that helps consumers sell their cars to dealers. R.L. Polk, a provider of business and marketing information to the auto industry, says that the average age of a modern vehicle is 11.4 years. If drivers decide to hang onto their new cars, the average length of time drivers keep a new vehicle is 71.4 months, a shade under 6 years.

Estimates vary but according to Hedges & Company in 2018 there were more than 276 million registered cars in the US. And in 2017, North American vehicle production hit 17.5 million unitsdown slightly from the prior year. So, the answer we’re all dying to know is, at current rates and assuming electric vehicles could be suddenly made in quantity and that consumers bought nothing else, it would take almost 16 years of production to replace the US fleet. Of course, some people might be on their second, third or fourth EV by that point.

That’s good to know because proven oil reserves, which is not the same as recoverable reserves, hovers around 50 years-worth of oil. That seems like a long time but not if you consider what needs to be done.

What needs to be done

The fossil fuel agenda for mid-century should include getting most of us driving electrics but it also includes conserving the oil that’s left in the ground. About 70 percent of the oil consumed in the US is used as transportation fuel. The remaining 30 percent does some incredibly important stuff.

Crude oil, coal and natural gas are all used as starting points in manufacturing a variety of products in the petrochemical industry and beyond. Fossil fuels are core to the production of fertilizers, synthetic fibers, plastics, steel, rubber and a good deal more. It takes 7 gallons of petroleum to make an average car tire including 5 gallons just to make the rubber.

There are also many uses of petroleum that don’t have a green alternative. The Pentagon has been working alternative fuels for over a decade investing billionsin to keep its ships, planes, helicopters, tanks and trucks running even if petroleum becomes scarce.

We need a similar approach for civilian aviation too if we expect to fly coast to coast in 6 or 7 hours indefinitely. These are all good reasons for conserving hydrocarbons where we can and driving on land seems a good place to begin.

Summing up

Global climate change isn’t one problem, it’s a constellation of issues and solving the big picture means treating it like a Rubik’s Cube instead of whack-a-mole. Running out of fossil fuels at the same moment in history that we’re discovering the climate problem might have spelled doom for prior generations. But today there are approaches in the marketplace for dealing with all phases of the issue from finding replacements for fuels to re-absorbing carbon. What’s lacking is institutional will to make things happen but even in this there’s hope. Consider these stats:

  1. 7 out of 10 Americans believe the climate is changing.
  2. 6 out of 10 recognize humans are the cause.
  3. 97 percent of climate scientists agree with the above points.
  4. 7 out of 10 Americans think clean energy should be a high priority for the federal government.
  5. 8 out of 10 Americans support a Green New Deal that would transition the US to 100 percent clean electricity.
  6. Only 9 percent of Americans question the existence of climate change and another 9 percent think it’s a hoax.

We’re in an interesting transition state. We all hear about time running out for taking positive action on climate but time is also running out to develop an acceptable new green energy paradigm. The pieces are available but without concerted action we could easily go down the road three or four decades and discover that large parts of the planet are too hot to live in or grow crops. That could spark all kinds of climate wars and refugee crises. If we don’t act soon, how will the generation alive at mid-century be able to cope?

 

 

https://www.desmogblog.com/finances-fracking-shale-industry-drills-more-debt-profit

Carbon fuels becoming too costly compared to renewables.

https://www.desmogblog.com/2019/02/22/inevitable-death-natural-gas-bridge-fuel-renewables

Increasingly, the carbon left is being reserved not for energy production but for materials. It’s not politicians or activist groups making this change, it’s the market.

Peak Shale: Is the US Fracking Industry Already in Decline?

https://www.desmogblog.com/2018/10/30/peak-shale-us-fracking-industry-permian-decline

 

As DeSmog’s series on the finances of fracking has documented, there is no doubt fracking can lead to production of large volumes of light oil, but it comes at the cost of approximately a quarter trillion dollars more than the industry has made since 2007.

 

 

 

Comments

Leave a Reply