The Last Drops: How to Bridge the Gap Between Oil and Green Energy
Oil won't run the world forever, but it will for the next few decades--so how do we get from here to the next energy economy?
For all our talk of an online future unbounded by physical limits, life in our increasingly global economy still requires the movement of actual people and things, often over long distances. And without a steady supply of prehistoric hydrocarbons, that movement would come to a halt. More than 95 percent of the vehicles on Earth–from cars to trucks to freighters to jumbo jets–run on oil products, and without them we’d be hard-pressed to commute to the office or import our gadgets, much less till our fields or get food from the farm to our kitchens. For now, we must have oil.
Our dependence on oil is driven less by the political might of the oil industry than it is by the fact that oil itself is a terrific source of power. It packs more energy into less space than any other commonly available resource, and it requires much less energy to produce. In the Middle East, where “easy” oil remains most plentiful, drillers need only invest a single barrel’s worth of energy to produce a full 30 barrels of crude. That is among the highest ratios of energy returned on energy invested, or EROEI, for any widely available source of power on the planet. (That same barrel’s worth of production energy, for instance, would get you fewer than two barrels of corn ethanol.) Oil’s amazing efficiency is one reason it remains in such high demand, especially for transportation, and it’s also why finding an alternative will be so difficult.
We face some complex choices, not just about where to extract what kind of oil, but also about when to extract it.But find one we must. We have already burned our way through most of the world’s easy oil. Now we’re drilling for the hard stuff: unconventional resources such as shale and heavy oil that will be more difficult and expensive to discover, extract, and refine. The environmental costs are also on the rise. Oil production remains a significant local ecological hazard—as we were reminded by the disastrous failure of the Deepwater Horizon well in the Gulf of Mexico last year–even as oil’s large carbon footprint threatens the global environment as a whole.
Bridging the gap between our current oil economy and an as-yet-undefined clean-energy economy will not be easy. Alternative systems, such as hybrid cars powered by biofuel drawn from oceanic algae farms, may be vastly more sustainable someday. But “sustainability” is an economic concept as much as it is an environmental one. People will always prefer cheap energy to expensive energy. (Indeed, many people in less-wealthy nations require cheap energy simply to survive.) And the process of making alternative energy systems affordable will be long and uncertain, in part because the oil-based systems they must compete against (internal combustion engines, for instance) will themselves become even more efficient and alluring.
Even if we were ready to mass-produce a new generation of, say, biofueled plug-in hybrid electric cars by 2020, and even if we–in an absurdly best-case scenario–started cranking out those new cars as fast as we now make gas guzzlers (about 70 million a year, worldwide), we would still need another 15 years to swap out the fleet. In the meantime, oil consumption will continue to rise, as demand from fast-growing economies in Asia outweighs any green gains by Western nations.
David Victor, an international energy policy specialist at the University of California at San Diego, says consumption won’t even begin tapering off for another 20 years. At that point, daily consumption, now at 85 million barrels a day (mbd), will have topped 100 mbd. Realistically, says James Sweeney, director of the Precourt Energy Efficiency Center at Stanford University, cutting global oil consumption to a more economically and environmentally tolerable level (say, 30 mbd) will probably take at least four decades. Before then, he says, “we will use a lot of oil.”
How much? At the rate Victor suggests, we’ll need something like a trillion barrels of crude to get us to the peak of oil consumption sometime in the 2030s–and, in all likelihood, another trillion barrels to get us down the other side, to a point where oil is a vastly smaller part of the energy economy. Just to bridge the gap, then, we’ll have to extract about two trillion barrels of oil during the next four decades–almost double the 1.2 trillion barrels we’ve already burned through since Pennsylvania wildcatters launched the oil age in 1859.
Hossein Kazemi, a professor of petroleum engineering at the Colorado School of Mines, says that about half of those final two trillion barrels have already been discovered and are waiting in “proven” reserves that can be exploited profitably using today’s technology. The other half won’t come so easily. By some estimates, the Earth contains up to eight trillion more barrels of oil, but that oil exists in many forms, some of which, such as shale oil, can be extremely expensive to extract or refine. And as we work our way through the easiest oil, we will also be confronted by increasing external costs—real costs that nonetheless aren’t accounted for at the gas pump. A desperate rush to extract oil from unstable nations can topple regimes, for instance, even as extracting it from environmentally fragile spots can do major harm to the land or the sea.
Which means that we face a series of complex choices, not just about where to extract what kind of oil, but also about when to extract it. Going after everything at once may seem wise, especially to oil entrepreneurs invested in specific resources or policymakers unconcerned about external costs. But as engineers develop new extraction and refinement techniques, oil that is expensive or environmentally harmful now may be cheaper or cleaner in the future. With that in mind, what would happen if we considered how best to extract our two trillion barrels not from the short-term perspective of a politician or a businessman, but from the longer view of a petroleum engineer? Which oil would we save for last, and which would we go for first?
Resources to Save for Last
Total reserves: 3 trillion barrels of oil equivalent (BOE)
Given the political anxiety surrounding the prospect of importing oil, U.S. policymakers will be understandably tempted to reach first for the closest, richest oil resource. For many, that would suggest shale oil. The vast deposits located beneath Colorado, Utah and Wyoming alone could generate up to 800 billion barrels of oil. But policymakers should resist that urge.
Oil shale is created when kerogen, the organic precursor to oil and natural gas, accumulates in rock formations without being subjected to enough heat to be completely cooked into oil. Petroleum engineers have long known how to finish the job, by heating the kerogen until it vaporizes, distilling the resulting gas into a synthetic crude, and refining that crude into gasoline or some other fuel. But the process is expensive. The kerogen must either be strip-mined and converted aboveground or cooked, often by electrical heaters, in the ground and then pumped to the surface. Either process pushes production costs up to $90 a barrel. As all crude prices rise, though, the added expense of shale oil may come to seem reasonable–and it is likely to drop in any case if the shale oil industry, now made up of relatively small pilot operations, scales up.
Policymakers should resist the urge to go hunting shale oil.The problem is that the external costs of shale oil are also very high. It is not energy-dense (a ton of rock yields just 30 gallons of pure kerogen), so companies will be removing millions of tons of material from thousands of acres of land, which can introduce dangerous amounts of heavy metals into the water system. The in-ground method, meanwhile, can also contaminate groundwater (although Shell and other companies say this can be prevented by freezing the ground). Both methods are resource-intensive. Producing a barrel of synthetic crude requires as many as three barrels of water, a major constraint in the already parched Western U.S. With in-ground, the kerogen must be kept at temperatures as high as 700°F for more than two years, and aboveground processes use a lot of heat as well. Those demands, coupled with kerogen’s low energy density, yield returns ranging from 10:1 (that is, 10 barrels of output for every one barrel of input) to an abysmal 3:1.
Total reserves: 1.5 trillion BOE
Coal can also be converted into a synthetic crude, as the German army, desperate for fuel, demonstrated during World War II. The method of transformation is simple: Engineers blast the coal with steam, breaking it into a gas that can then be converted, by the Fischer-Tropsch process, into gasoline and other fuels. Many energy companies are promoting various coal-to-liquid processes (CTL) as a way to replace oil, especially in the U.S. and other coal-rich nations.
The appeal is obvious. At a conversion rate of just under two barrels per ton, the world’s 847 billion tons of recoverable coal theoretically represent roughly 1.5 trillion barrels of synthetic oil, or a substantial piece of the final trillion.
Like shale oil, however, CTL has significant shortcomings. Its energy return is unimpressive; a barrel’s worth of invested energy nets just three to six barrels of CTL. Moreover, coal contains about 20 percent more carbon than oil does, and converting it to liquid raises the ratio even further. CTL fuels have a carbon footprint nearly twice as large as that of conventional oil–1,650 pounds of CO2 per barrel of CTL, versus 947 pounds per barrel of conventional.
Even if producers installed a vast and expensive system to capture and sequester the CO2 produced during the conversion process, says Edward Rubin, a professor of environmental engineering at Carnegie Mellon University, coal production uses so much energy that CO2 emissions from CTL fuels would still be as great as those of conventional oil. At best, making fuel from coal would get us no closer to a more climate-compatible energy system.
All of that aside, even the supply of coal is not infinite. Researchers at the Rand Corporation concluded in 2008 that replacing just 10 percent of U.S. daily transportation fuel with CTL would take 400 million tons of coal annually, which would mean expanding the American coal industry, which is already straining environmental limits, by 40 percent. Although such an undertaking might be politically feasible in China or other nations, Rubin says, “I have a hard time seeing that in this country.”
A Better Bite
Resources Better Later Than Now
Total reserves: 1 to 2 trillion BOE
Other unconventional resources may, despite having many shortcomings, become somewhat more attractive as new extraction methods come online. One of these is “heavy oil,” which ranges from the molasses-like crude in Venezuela to the bituminous oil sands of Alberta. For decades, oil traders saw heavy oil as inferior to light crude, which is easier to extract and whose smaller-chain molecules are more readily refined. Heavy oil’s bigger molecules, in contrast, were suited mainly to low-profit products, such as ship fuel or asphalt. But new refining techniques are making heavy oil more renderable into gasoline, and new extraction methods are making it easier to get out of the ground.
At a heavy-oil field outside Bakersfield, California, for instance, Chevron deploys computer-guided steam injection to thin the oil sufficiently to pump out. Even more promising are oil-sands operations in Alberta, where companies are now separating the brittle bitumen from sand and clay and cooking it into synthetic crude. At a conversion rate of one barrel for every two tons of sand, Alberta’s oil sands alone may contain up to 315 billion barrels of crude. As refining costs have dropped, output has reached 1.5 mbd and could more than quadruple, to 6.3 mbd, by 2035.
That said, heavy-oil production also has plenty of external costs. As with the kerogen in shale, the bitumen is processed either in-ground or by strip-mining. Both processes consume up to 4.5 barrels of water for every barrel of oil they produce and yield an unimpressive EROEI of about 7:1. And because heavy oils are carbon-rich, the CO2 footprint of crude from bitumen is up to 20 percent higher than that of conventional crude—not as bad as coal, but not exactly friendly to the environment either. Carbon-capture and -sequester techniques can only keep so much of that CO2 out of the atmosphere. Oil-sands operations are sprawling, and as a result, very little of the total CO2 emissions can be captured (one study suggests we might trap just 40 percent by 2030).
If carbon-capture techniques improve, though, heavy oil could make up a substantial share of the final two trillion barrels for a carbon penalty substantially below that of either CTL or shale oil. A further advantage (from the U.S. perspective) is that a lot of heavy oil is located in a politically stable country that’s right next door.
Total reserves: 0.1 to 0.7 trillion BOE
The “deep” in ultra-deep refers to the depths plumbed by floating oil rigs (typically, anything beyond 5,000 feet). But the more important depth is the distance from the ocean floor to the oil itself. It’s not easy to start an excavation a mile or two underwater, much less one that continues on for several more miles underground (the current record, set in 2009 in the Gulf of Mexico, is nearly seven miles). But an ever-expanding drilling fleet is deploying new techniques in horizontal drilling, sub-sea robotics and “four-dimensional” seismology (which geologists use to track oil and natural-gas deposit conditions in real time) to rapidly expand output. Although fewer than half the world’s ultra-deep provinces have been fully explored, deepwater output in the past decade has more than tripled, to 5 mbd, and it could double again by 2015.
As the Deepwater Horizon disaster made clear last year, though, tapping this resource can involve significant external costs. The pressure in ultra-deep reservoirs can reach up to 2,000 times that at sea level. The oil within can be extremely hot (up to 400°F) and rife with corrosive compounds (including hydrogen sulfide, which when in water can dissolve steel). And the pipes that rise from the seafloor are so long and heavy that the platforms supporting them must be extraordinarily large simply to stay afloat. The biggest discovery in decades, Brazil’s “pre-salt play,” meanwhile, is defended by a 1.5-mile-thick ceiling of salt, which had the beneficial effect of absorbing surrounding heat and keeping the oil from breaking down—but which also, in doing so, congealed the oil into a paraffinic jelly that drillers must now thin with chemicals before they can extract it.
There is little chance that the transition to a clean-energy economy will be entirely clean. It will require compromises.Not surprisingly, ultra-deepwater oil is some of the most expensive in the business. A single drilling platform can cost $600 million or more (especially if the deepwater is in the Arctic, where rigs must be armored to withstand Force-10 winter storms and hull-crushing ice floes), and companies can easily spend $100 million drilling a single ultra-deepwater well. The result of all this effort is a modest EROEI–from 15:1 all the way down to 3:1.
Thus, even as companies scramble to improve safety, most of the research and development in the ultra deep will focus on saving money and energy. Remotely controlled, steerable drill heads, for example, allow companies to drill multiple bores from a single platform (thus lowering costs and the aboveground footprint) and to follow the path of narrow oil seams, greatly increasing oil output. (The record for a horizontal bore, set by Exxon near Russia’s Sakhalin Island, is also about seven miles.) To further cut drilling costs, companies will steadily boost rates of penetration with more-powerful drill motors, drill bits made of ever-harder materials and, eventually, a drilling process that uses no bits at all. Tests at Argonne National Laboratory suggest that high-powered lasers can penetrate rock faster than conventional bits, either by superheating the rock until it shatters or by melting it.
Costs will further recede as companies develop more-accurate “multi-channel” seismic prospecting techniques that will, by combining up to a million seismic signals, help them avoid the ultimate waste of drilling into empty rock. And to better measure the oil reservoirs themselves, companies are creating heat- and pressure-resistant “downhole” sensors (similar to devices NASA developed to monitor rocket engines) that communicate to surface computers via optical fiber.
As the volume of data rises, the industry will also create more-powerful tools to analyze it, from monster compression algorithms (courtesy of Hollywood animators) to entirely new computing architectures. “If we go to a million channels [of seismic data], then we need petaflop computation capability, which we currently do not have,” says Bruce Levell, Shell’s chief scientist for geology. To get that capability, oil firms are working with Intel, IBM and other hardware firms. In the future, Levell says, the oil business “is really going to drive high-performance computing.”
Resources to Tap Now
Total reserves: 1 trillion BOE
Natural gas, or simply “gas” in industry parlance, has long been oil’s biggest potential rival as a transport fuel. Gas is cleaner than oil–it emits fewer particulates and a quarter less carbon for the same amount of energy output–yet today it powers less than 3 percent of the U.S. transportation fleet (mainly in the form of compressed natural gas, or CNG). This proportion is poised to grow, though, in part because the overall supply of gas keeps growing.
With advances in a drilling technique called hydraulic fracturing, or “fracking,” companies can now profitably extract gas from previously hard-to-reach shale formations. Worldwide reserves of shale gas currently stand at 6,662 trillion cubic feet, the energy equivalent of 827 billion barrels of oil. And that doesn’t include the gas that is routinely discovered alongside oil in oil fields and that is sure to be found in some of those yet-to-be-explored deepwater basins.
Gas is so plentiful that, in energy-equivalent terms, its price is a quarter that of oil–a bargain that is already transforming CNG from a niche fuel, used mainly in bus fleets, to a product for general consumption. The Texas refiner Valero, for instance, will soon begin selling CNG at new stations in the U.S.
What happens if we consider how best to extract our two trillion barrels not from the short-term perspective of a politician or a businessman, but from the longer view of a petroleum engineer?A gas-powered future could still have some high external costs, though. Fracking can be extremely hazardous to the local environment. The method uses high-pressure fluids to break open deep rock formations in which gas is trapped, and these fluids often contain toxins that might contaminate groundwater supplies. But such risks, which have received substantial media coverage and are now the focus of a new White House panel, may be controllable. Gas deposits are typically thousands of feet belowground, while groundwater tables are much closer to the surface, so most contamination is thought to take place where the rising bore intersects with the water table–a risk that could be minimized by requiring drillers to more carefully seal the walls of the bore.
That said, allocating too much natural gas to transportation might have surprisingly negative consequences. First, it would most likely increase demand for natural gas so much that prices would rise, thereby undermining the current cost advantage. Second, shifting a large volume of gas to the transportation sector would mean pulling that volume away from the power sector, where it is more constructively displacing coal, whose carbon content is far higher than oil’s. But converting specific sectors of the transportation system (delivery fleets, for instance, or buses) could simultaneously cut CO2 emissions and reduce oil demand.
Enhanced Oil Recovery
Total reserves: 0.5 trillion BOE
The resource that comes with the lowest external cost might be the oil we left behind, back when energy was a lot cheaper. Drillers typically end up extracting just a third of the oil in a given field, in part because when they drain reservoirs they also decrease the pressure that pushes oil to the surface, making it more expensive to extract the remaining barrels. In the U.S., abandoned oil fields may still contain a staggering 400 billion barrels of residual oil; worldwide, the figure is probably in the trillions. Extracting all of it is economically impossible, but advances in enhanced oil recovery, or EOR, could boost extraction rates to as high as 70 percent.
EOR could add perhaps half a trillion “new” barrels worldwide. And it could also carry a substantial environmental bonus. One of the most promising EOR methods involves “flooding” oil reservoirs with CO2, which dissolves into the oil, making it both thinner and more voluminous, and thus easier to extract. Once the oil is extracted, the CO2 can be separated, re-injected into the field, and sequestered there permanently. An aggressive strategy in which CO2 is captured from single-point sources (such as power plants or refineries) and pumped into oil fields could increase U.S. oil output by as much as 3.6 mbd while sequestering nearly a billion tons of CO2. And depending on the method, EOR can have an EROEI as high as 20:1.
EOR can’t entirely bridge the gap–but in a perfect world, we would at least begin by tapping those barrels, along with the oil–equivalent barrels of natural gas. That way, we would be using the least damaging resources first and saving the worst barrels for later, when (if all goes well) future engineering innovations will let us extract and consume them more safely and efficiently.
But of course, we don’t live in a perfect world. For now, oil producers will do what they have always done, which is to extract oil as cheaply as they can. And oil consumers will follow suit, buying the cheapest energy they can. We may eventually ask the market to take the true costs of production into account, perhaps by way of a carbon tax or some kind of climate regulation. Or we may not. Energy policy has never been particularly far-sighted. There is little chance that the transition to a clean-energy economy will be entirely clean. It will require trade-offs and compromises, and the cost of those trade-offs and compromises will rise with every year that we wait to get serious about moving away from oil.
Paul Roberts is the author of The End of Oil: On the Edge of a Perilous New World_._