Environmental Engineering Reference
In-Depth Information
While America's current gross oil production numbers appear rosy, from an energy accounting per-
spective the figures are frightening: energy profit margins are declining fast.
Each year, a greater percentage of US oil production comes from unconventional
vertical wells, these sources demand much higher capital investment per barrel produced. Tight oil
wells typically require directional drilling and hydraulic fracturing (“fracking”), which take lots of
money and energy (not to mention water); initial production rates per well are modest, and produc-
tion from each well tends to decline quickly. Therefore more wells have to be drilled continually in
order to maintain a constant rate of flow. This has been called the “Red Queen” syndrome, after a
passage in Lewis Carroll's
Through the Looking-Glass
. In the story, the fictional Red Queen runs
at top speed but never gets anywhere; she explains to Alice, “It takes all the running you can do, to
keep in the same place.” Similarly, it will soon take all the drilling the industry can do just to keep
production in the fracking fields steady. But the plateau won't last long; as the best drilling areas
become saturated with wells and companies are forced toward the peripheries of fuel-bearing geo-
logical formations, costs will rise and production will fall. When, exactly, will the decline begin?
Probably before the end of this decade.
3
Deepwater production is expensive too: it involves operating in miles of ocean water on giant
drilling and production rigs.
4
It is also both environmentally and financially risky, as BP discovered
in 2010 in the Gulf of Mexico.
Canada's tar sands require special energy-intensive processing in order to yield usable fuels.
Unless oil prices remain at current stratospheric levels, significant expansion of tar sands operations
may be uneconomic.
America is turning increasingly to unconventional oil because conventional sources of petro-
leum are drying up. The United States is where the oil business started and, in the past century-and-
a-half, more oil wells have been drilled here than in the rest of the world's countries put together. In
terms of our resource pyramid diagram, the United States has drilled through the top “conventional
resources” triangle and down to the thick dashed line labeled “price/technological limit.” At this
point, significantly new technology is required to extract more oil (of which there is plenty—just
look how much of the total pyramid is left!), and this comes at a higher financial cost, not just to
the industry but ultimately to society as a whole.
5
Yet society cannot afford oil that's arbitrarily ex-
pensive: the “price/technological limit” can be moved up to a point, but we may be reaching the
frontiers of affordability.
Lower energy profits from unconventional oil inevitably show up in the financials of oil com-
panies. Between 1998 and 2005, the industry invested $1.5 trillion in exploration and production,
and this investment yielded 8.6 million barrels per day in additional world oil production. Between
2005 and 2013, the industry spent $4 trillion on E&P, yet this more-than-doubled investment pro-
duced only 4 mb/d in added production.
6
It gets worse: all net new production during the 2005-13 period was from unconventional
sources (primarily tight oil from the United States and tar sands from Canada); of the $4 trillion
spent since 2005, it took $350 billion to achieve a bump in their production. Subtracting uncon-
ventionals from the total, world oil production actually fell by about a million barrels a day during
