National Anxiety Center - Warning Signs!

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May 10, 2006 ~ Vol. 8, No. 19

Late Word from the Oil Patch

As I am sure you have read or heard somewhere, "the world is running out of oil" and we’re all doomed. Unless we can figure out how to run our cars on soy sauce, it’s back to bicycle and horses.

Well, not quite. Here’s what a U.S. Energy Information Administration 2002 report had to say: "At year-2000 consumption rates, the world has many thousands of years of crude oil and crude oil substitutes (heavy oil, oil sands, and shale oil) remaining."

When people tell me that America is too dependent on foreign oil imports, I keep telling them we have lots of oil, but thanks to the environmentalists, our own government has made it either too costly to get at it or access has been restricted because the bulk of our undeveloped energy resources is found on federal lands or federally controlled areas offshore. This is what happens when the federal government owns nearly half the landmass of the nation.

Myths about oil are constantly repeated by the mainstream media. The truth, however, is available from open sources such as a U.S. Geological Survey that estimates the United States has almost 175 billion barrels of oil reserves. The survey cites 21.9 billion barrels of known oil reserves and an estimated 150 billion of "undiscovered" reserves.

Why wouldn’t Big Oil go elsewhere to tap known or newly discovered oil reserves when faced with a government that is hostile to permitting access to our own? Alaska alone is still a treasure of oil and natural gas. Alaska’s North Slope, home to the Artic National Wildlife Refuge, is known to have the potential of providing millions of barrels of new oil production. If we started now, it would be available in ten years, maybe less. In reality, Congress has delayed access for some three decades!

Yes, you’re paying more for oil and, yes, you will continue to do so because the U.S. government has failed to grant access to our own known reserves of oil and created "environmental" roadblocks to the building of new refineries.

Meanwhile, we keep hearing that the world is running out of oil. I am not going to dispute geologists and others who know far more about these matters than myself, but I am encouraged by reports of new oil discoveries. Let’s take a look at what is actually occurring worldwide.

In 1995, crude oil production in Australia began in its Wanaea and Cossack fields, located 81 miles off the northwestern coast. The fields were estimated to contain 200 million barrels of recoverable oil.

Six years ago in Kazakhstan, Kazakhoil Aktobe was making plans to begin development of three new oil fields.

In 2003, new oil fields were found in Iran with reserves estimated as high as 38 billion barrels though analysts expressed the view that only a fraction of that might be commercially worthwhile because it is what is called heavy crude which is more expensive to process.

More recently, an oil field rivaling the largest in Mexico was discovered just off the coast in the Gulf of Mexico. The new field is estimated to yield up to 10 billion barrels. Extraction is not expected to begin for about a decade.

In March 2005, Egypt’s oil minister announced that three new oil fields had been discovered near the Gulf of Suez with estimated total reserves of 70 million barrels. These were the first discoveries in the area in nearly forty years. Egypt has a proven reserve of 2.7 billion barrels of oil and 1.2 trillion cubic meters of natural gas.

In late 2005, Libya announced the discovery of two new oil fields in the south of that nation. They are estimated to have a production capacity of 252 million barrels a year. A coalition of Spanish, French, and Norwegian oil companies that found the new fields will share the profits.

The Middle East will continue to dominate the world’s known reserves of oil. Saudi Arabia has the largest, followed by Iraq. In Oman, four new oil fields were recently discovered. The Sultanate’s crude oil exports were over 238 million barrels in 2005.

Even New Zealand has discovered oil. The Tui Area oil fields in the offshore Taranaki Basin, will be the country’s first stand-alone offshore oil development. Nearby oil fields in Amokura and Pateke were discovered in 2003 and 2004 respectively. When everything gets going, an estimated 50,000 barrels a day are expected, but that could rise to 120,000 barrels in time.

The president of Russia’s Union of Oil and Gas Industrialists wants to see more oil development in Eastern and Western Siberia. A new field offshore of Sakhalin, a large island just off the mainland, plus a new pipeline to Russia’s Pacific coast is going to increase the world’s supply of oil.

China’s a very big place. Not only are they going to compete for the world’s oil, they have had their own fields since 1960. In 2001, Chinese researchers announced the discovery of new gas and oil deposits in Tibet in southwestern China. It is an area called the Qiantang basin and initial estimates, though speculative, suggest that China may have hit a mother lode. If it turns out to be true, many of the world’s major oil companies will make significant investments. There are more than a dozen Chinese oil fields currently pumping crude.

In April, ExxonMobil announced that its affiliate in Nigeria had started production from the world class Erha deepwater development, some sixty miles offshore. It will come on-stream later this year and will ramp up to produce up to 150,000 barrels a day by the year’s end.

I know about the "Peak Oil" theory that says we either have or are about to reach the point of diminishing returns regarding the world’s oil supply, but these recent discoveries suggest there is still plenty of oil to be found. Alas, a lot of it is under the control of nationally run oil companies in countries that don’t invest in new production and don’t like the U.S. very much.

What is lacking, however, is the political will of Congress to remove the regulatory barriers that would insure an America less dependent on imported oil and with the capability to refine the increased supplies this nation will require. We don’t have an oil problem. We have a government problem.

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Straight Talk on Shale Oil

Like a lot of pundits pontificating on oil these days, I have been guilty of citing the enormous resources of oil that can be found in what is commonly called "oil shale", noting the large deposits known to exist in the Green River Formation in northwestern Colorado, northeastern Utah, and southwester Wyoming.

There is, however, a big difference between "resources" and "reserves."

Resources are the total of what is known or estimated to exist worldwide. Reserves represent what can be economically extracted. There is also a little known problem in the term "shale oil" because, in fact, it is not shale.

Walter Youngquist of the M. King Hubbert Center for Petroleum Supply Studies wrote "Shale Oil: The Elusive Energy" in October 1998. This easily comprehended paper points out that shale oil is a misnomer. "It is neither shale nor does it generally have any oil in it. It is better identified as organic marlstone, marl being a mixture of clay and calcium carbonate."

What is generally called oil shale is, in fact, "kerogen", an organic matter. Those eager to sell the notion of making a fortune with it coined the term shale knowing that trying to sell shares in organic marlstone was not likely to attract big bucks.

Many oil companies, however, have invested huge amounts of money to turn shale oil (I will use the general term) into a commercial product. Virtually all the major U.S. oil companies bought leases, but by the late 1950s, it was obvious to all that shale oil was not viable. One by one the oil companies gave up. By the time it quit, Unocal had dropped $650 million!

Unlike crude oil that can be extracted by drilling to its source, shale does not yield up its oil without considerable effort. Moreover, as Youngquist noted, "The worthwhile oil shale strata are almost all buried so deeply that they have to be mined by underground methods which is much more expensive than strip mining."

Even when you can get at it, the rock has to be loaded and hauled to a processing plant where it can be crushed and heated to approximately 900 degrees Fahrenheit so it can be changed to a liquid which, in turn, must be further processed to produce oil.

Petroleum is a hydrocarbon whereas kerogen lacks the hydrogen (H) atom "required to convert kerogen into a hydrocarbon that can be refined into gasoline and other petroleum products. Untreated kerogen shale oil is good only to burn as boiler fuel or as a base for some plastics and other petroleum by-products."

A good way to think about kerogen is to compare it with ethanol, a petroleum additive, which is made, i.e., distilled from agricultural products like corn. Consider how wasteful it is to require that 22% of the U.S. corn crop to provide a mere 4% of gasoline supplies, but that is exactly what a new congressional mandate does!

So, the next time you read or hear that the United States has an estimated 800 billion barrels of recoverable oil from shale oil—just in the Green River Formulation—keep in mind that the price of oil would have to reach $100 per barrel to make that shale oil commercially viable.

By then, there could well be mass rallies of infuriated consumers in Washington, D.C. and politicians being strung from streetlights for refusing to let anyone drill for real oil in ANWR and elsewhere!

We have the "problem" of plenty of crude oil in the global marketplace and a lack of the ability to refine it here in the U.S. because self-anointed environmentalists have created every roadblock to accessing our own oil reserves and permitting oil companies to expand their refining capabilities.

We are at this crossroads because the federal and state governments have been extracting major tax dollars from your pocket every time you gas up your car, SUV or truck.

We are here because your government requires the use of ethanol, a gasoline additive, mandating that refiners double their 2005 use to 7.5 billion gallons per year by 2012. At the same time, the government imposes a 54-cent per gallon tariff on imported ethanol, keeping the price of this useless additive unreasonably high at the gas pump.

And, finally, let it be said that most of the vast shale oil resources in the U.S. exist on federally owned lands. And that’s where it is likely to stay forever.

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