Colleagues: Two columns today looking at the nation’s energy future, with the key arguments being that the coming explosion in availability of natural gas and, yes, oil, makes a focus on some renewable sources, such as wind and solar, questionable at this recessionary time. First, my column that appeared in today’s Reno Gazette Journal, and the second by a leading energy expert, Dan Yergin, in today’s Washington Post. A key takeaway–the Americas, if not the US, can soon be “energy independent”, a thought we could not have considered uttering just a year ago. Ty
Let’s Stop Drinking the Renewable Energy Kool-Aid
Proponents of “Green Energy” continue to hype the potential of solar, wind, biomass and other renewable resources as cheap, abundant engines that can efficiently propel economic growth in the state. These cheerleaders, however, ignore the soaring costs associated with producing electricity from these sources, a differential that will only be magnified as vast new reserves of traditional fossil fuels become available.
These adherents seem unaware of the shale gas revolution that has occurred in the last few years and the coming explosion of oil production in North America. Hydraulic fracturing (fracking) has unearthed vast natural gas reserves previously buried in inaccessible shale rock. That technique is now being applied to extracting oil, opening up tremendous potential in Canada and throughout the central United States.
There is a historic shift occurring in global oil and gas production. American expert Dan Yergen predicts an anmazing “new rebalancing”, with the Western hemisphere moving back to self-sufficiency and an end to our reliance on long distance energy shipments from areas of conflict! Venezuela is now considered to have bigger oil reserves than Saudi Arabia, new finds in the Arctic area are very promising, and recent oil exploits in Canada and the U.S. suggest that technology may be trumping geology. Offshore oil will be tapped, but the most significant development is the exploitation of extensive rock formations ranging from Texas to North Dakota, believed previously to be too costly and technologically impossible to extract the fuels.
Just a few years ago, many of us worried that the world had reached “peak oil”, the point at which global petroleum production began a steep downward slope. Now these new extraction techniques promise such an expansion of oil and gas production that some observers believe the United States could soon become energy independent. While these estimates are somewhat optimistic there is no doubt that the revolution in technology will alleviate our dependence on oil from the volatile Middle East and gas from such unreliable suppliers such as Russia and Algeria.
Inexplicably, in the midst of this revolution we still hear claims that Nevada can play a key role in the development of green technology as well as becoming a net exporter. In fact, the only renewable that offers real potential for the state is our extensive geothermal resources. We need to maintain the emphasis on geothermal, with a view to exploiting the promising returns that could come from deep drilling and “fracking”.
Presently solar and wind cost about five times per kw/hr of electricity generated than natural gas, despite questionable extensive federal subsidies (think Solyndra, whose bankruptcy caused the government to lose a half billion dollar loan guarantee!) We need to continue conducting research in these areas given that fossil fuels can’t last forever, but the expansion of gas and oil production affords us time to make solar, wind and, yes, nuclear, more reliable and cost efficient alternatives.
While the United States must continue to invest in renewable energy technologies, and exploit the potential offered by nuclear and geothermal today, we must take advantage of the coming surge in shale gas and oil production here. To not embrace this revolution would be economic suicide.
Tyrus W. Cobb
This op-ed appeared in the Reno Gazette-Journal, October 30, 2011
Oil’s new world order
By Daniel Yergin, Washington Post, October 30, 2011
For more than five decades, the world’s oil map has centered on the Middle East. No matter what new energy resources were discovered and developed elsewhere, virtually all forecasts indicated that U.S. reliance on Mideast oil supplies was destined to grow. This seemingly irreversible reality has shaped not only U.S. energy policy and economic policy, but also geopolitics and the entire global economy.
But today, what appeared irreversible is being reversed. The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere. The new energy axis runs from Alberta, Canada, down through North Dakota and South Texas, past a major new discovery off the coast of French Guyana to huge offshore oil deposits found near Brazil.
This shift carries great significance for the supply and the politics of world oil. And, for all the debates and speeches about energy independence throughout the years, the transformation is happening not as part of some grand design or major policy effort, but almost accidentally. This shift was not planned — it is a product of a series of unrelated initiatives and technological breakthroughs that, together, are taking on a decidedly hemispheric cast.
The search for a “hemispheric energy policy” for the United States has been a subject of discussion ever since the oil crises and supply disruptions of the 1970s. Yet it was never easy to pin down exactly what such a policy would mean. Some years ago, an economic adviser to a presidential candidate dropped in to see me, explaining the directive that his boss had given him: “You know that Western hemispheric energy policy that I have been giving speeches about? Could you talk to some people around the country and find out what I actually mean by a Western hemispheric energy policy?”
The notion of “hemispheric energy” in the 1970s and 1980s rested on two pillars. One was Venezuela, which had been a reliable petroleum exporter since World War II. The other was Mexico, caught up in a great oil boom that had transformed the United States’ southern neighbor from an oil importer into a major exporter.
But since Hugo Chavez took power in Venezuela, its petroleum output has fallen — about 25 percent since 2000. Moreover, Venezuela does not seem quite the pillar to rely on when its leader denounces “the U.S. empire” as “the biggest menace on our planet” and aligns his country with Iran. And Mexico, which depends on oil for 35 percent of its government revenue, is struggling with declining output. Without reform to its oil sector and international investment, it could become an importer of oil later this decade.
The new hemispheric outlook is based on resources that were not seriously in play until recent years — all of them made possible by technological breakthroughs and advances. They are “oil sands” in Canada, “pre-salt” deposits in Brazil and “tight oil” in the United States.
In little more than a decade, Canada’s oil sands have gone from being a fringe resource to a major one. Oil sands (sometimes known as “tar sands”) are composed of very heavy oil mixed with clay and sand. The oil is so heavy and molasses-like that, for the most part, it does not flow until it is separated from the sand and clay and treated. To do that on a large scale and on a commercial basis has required substantial advances in engineering over the past 15 years.
Oil sands production in Canada today is 1.5 million barrels per day — more oil than Libya exported before its civil war. Canadian oil sands output could double to 3 million barrels per day by the beginning of the next decade. This increase, along with its other oil output, would make Canada a larger oil producer than Iran — becoming the world’s fifth largest, behind Russia, Saudi Arabia, the United States and China.
The oil sands have become particularly controversial because of environmental groups’ vigorous opposition to the proposed 1,700-mile Keystone XL pipeline, which would carry oil from Alberta to the Texas coast. The pipeline is waiting for the Obama administration to say “yea” or “nay.” Though large, it would increase the length of the oil pipeline network in the United States by just 1 percent.
The main reason given for the opposition is the carbon dioxide associated with oil sands production, but the impact of this should be considered in the context of the overall release of CO2. When measured all the way from “well to wheels” — that is, from production to what comes out of an auto tailpipe — oil sands average 5 to 15 percent more carbon dioxide than the average barrel of oil used in the United States. And this country uses other streams of oil that generate CO2 in the same range.
Even while the environmental argument rages, oil sands are proving to be a major contributor to energy security. Although it is easy to assume that most U.S. oil imports come from the Middle East, the largest individual share by far — nearly a quarter of the total — comes from Canada, part of a dense network of economic ties that makes Canada the United States’ largest trading partner. More than half of Canada’s oil exports to the United States come from oil sands, and that share will rise steeply in the years ahead.
At the other end of that hemispheric oil axis is Brazil. When Brazil began to develop ethanol from sugar in the 1970s, it did so based on the conviction that the country had no oil. As it turns out, Brazil has lots of oil. Just the increase in Brazilian oil production since 2000 is more than one and a half times greater than the country’s entire ethanol output.
In the middle of the last decade, new breakthroughs in technology made possible the identification and development of huge oil resources off the southern coast of Brazil that until then had been hidden below a belt of salt a mile thick. The salt had rendered unreadable the seismic signals necessary to determine whether oil was there. “The breakthrough was pure mathematics,” said Jose Sergio Gabrielli de Azevedo, the president of Petrobras, Brazil’s national oil company. “We developed the algorithms that enabled us to take out the disturbances and look right through the salt layer.” Once discovered, further technical advances were required to cope with the peculiarities of the salt layer, which, sludge-like, keeps shifting.
Developing these “pre-salt” resources, as they’ve become known, is a big technical, political and logistical challenge for Brazil, and will require huge investments. But, if development proceeds at a reasonable pace, Brazil could be producing 5 million barrels of oil per day by around 2020, about twice Venezuela’s current output — and more than half the current output of Saudi Arabia. That would make Brazil, not Venezuela, the powerhouse of Latin American oil, and could make it a major exporter to the United States.
The third major supply development has emerged right here in the United States: the application of shale-gas technology — horizontal drilling and hydraulic fracturing, a process popularly known as “fracking” — to the extraction of oil from dense rock. The rock is so hard that, without those technologies, the oil would not flow. That is why it is called “tight oil.”
Case study No. 1 is in North Dakota, where, just eight years ago, a rock formation known as the Bakken, a couple of miles underground, was producing a measly 10,000 barrels of oil per day. Today, it yields almost half a million barrels per day, turning North Dakota into the fourth-largest oil-producing state in the country, as well as the state with the lowest unemployment rate.
Similar development is taking place in other parts of the country, including South Texas and West Texas. Altogether, tight oil production is growing very fast. The total output in the United States was just 200,000 barrels per day in 2000. Around 2020, it could reach 3 million barrels per day — a third of the total U.S. oil production. (And that is a conservative estimate; others are much higher.)
Together, these three developments will radically alter the global flow of oil. The Western Hemisphere will still require supplies from the rest of the world, but not to the same degree — and certainly nowhere near the growing amounts forecast just a few years ago. The need could fall by as much as half by 2020, which will mean declining imports from the Middle East and West Africa.
Oil that would have gone west from those regions will instead flow in increasing volumes to the east — to the booming emerging markets of Asia. And those markets will be in urgent need of additional supplies. China, which today consumes half as much oil as the United States, could by the beginning of the next decade overtake America as the world’s largest oil consumer. All of this points to a major geopolitical shift, with Asian economies having an increasing stake in the stability of Mideast oil supplies. It also raises a very significant question over the next several years: How will responsibility be shared among the great powers for the stability of the Persian Gulf?
For the United States, these new sources of supply add to energy security in ways that were not anticipated. There is only one world oil market, so the United States — like other countries — will still be vulnerable to disruptions, and the sheer size of the oil resources in the Persian Gulf will continue to make the region strategically important for the world economy. But the new sources closer to home will make our supply system more resilient. For the Western Hemisphere, the shift means that more oil will flow north to south and south to north, rather than east to west. All this demonstrates how innovation is redrawing the map of world oil — and remaking our energy future.
Daniel Yergin is chairman of IHS Cambridge Energy Research Associates and the author of “The Quest: Energy, Security, and the Remaking of the Modern World.”