Peak Oil News: Oil Between A Rock And A Hard Place

Wednesday, September 21, 2005

Oil Between A Rock And A Hard Place

Investor's Business Daily

Energy: Most fear-mongers are careful not to say we're running out of oil. They know they can't get away with it. Instead, they use words such as "crisis" and "peak oil" to insist that in about 30 years, little will remain.

Doomsayers who claim the world is running out of oil are not unique to our time. They've been around as long as oil has been used as an energy source.

As noted in a 1995 American Petroleum Institute paper, an advertisement for Kier's Rock Oil advised consumers in 1855 to "hurry, before this wonderful product is depleted from nature's laboratory."

Nineteen years later, the state geologist of Pennsylvania, which was then the nation's top oil-producing state, made a startling prediction. There was only enough oil left in the U.S., he said, to keep kerosene lamps burning for four years.

By 1950, the world had endured seven oil shortage scares. Then things got interesting. In 1956, M. King Hubbert, a Shell Oil geophysicist, produced a paper declaring that U.S. oil production would peak by the early 1970s. Peak it did — but at a level 13% higher than he reckoned.

(Keep in mind that Hubbert said production, not reserves, would peak and decline. Since Hubbert made his forecast, vast new reserves have been uncovered.)

From that peak, Hubbert, whose theory unfortunately gave every doomsayer leave to shriek alarms about the end of oil, believed production would be in perpetual decline. Instead, production actually increased after a short fall-off.

Next we endured the Arab oil embargo of 1973. Those who wanted to instill fear had their crisis to play off of. Of course a long era of cheap, plentiful oil began shortly thereafter.

These frights and forecasts sound much like the stream of warnings that have come since the beginning of time that the end is nigh. The only thing they have in common is they've all been wrong.

The fact is, the Earth still has plenty of oil to give — more than a trillion barrels of conventional crude reserves. The power of prices and the advances in technology assure us of that. Prices will move enough to ensure that the last drops of oil are too expensive to be extracted, should it ever come to that, unless lawmakers unwisely set price caps.

The fast pace of technological progress, meanwhile, will let the industry find oil it could not see before and to easily extract oil that's hard to get. Consider the rich reserves held in oil shale.

Though it's expensive to extract, the amount of oil found in mineral deposits in Colorado, Wyoming and Utah is staggering. With possibly as much as 1 trillion recoverable barrels embedded in rock, this field dwarfs the known conventional reserves in Saudi Arabia, where 261 billion barrels burble beneath the sands.

As a point of reference, the U.S. uses about 20 million barrels a day.

Squeezing oil from stone is not as easy as poking holes in Middle Eastern deserts, though. Heat is required to extract oil from shale. This is where technology is most meaningful.

Taking oil from shale typically requires mining. In a new report, the Rand Corp. figures that process is profitable only when prices are $70 to $95 a barrel in today's dollars, just a bit higher than current crude prices.

Another process that's been tested on a small scale would make drawing oil from shale profitable when crude prices are in the mid-$20 range.

It will be a while, though, before much shale oil reaches pumps in the form of gasoline. Rand research indicates it could be at least 12 years "before oil shale development will reach the production growth phase."

Rand adds that it might take more than 20 years to get a million barrels a day from oil shale. Given the pace of technological advancement, we'd say that's a bit pessimistic.

Either way, the inescapable fact is we're not in danger of running out of oil.

In addition to the oil that can be tapped from the shale in those small patches in the American West, several trillion barrels of oil are tucked away in the tar sands of Canada, South America and the Middle East.

It's quite clear that when the pools we draw from now get low, the end is still a long way off.


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