Snake Oil: How Fracking's False Promise of Plenty Imperils Our Future (3 page)

Let me be clear: I am not saying that the United States will
run
out
of shale gas or tight oil sometime in the next five to seven years, but that the current spate of oil and gas
supply growth
will probably be over, finished, done and dusted
before the end of this decade. Production will start to decline, perhaps sharply.

Meanwhile the brief, giddy production boom we are currently seeing in towns, farms, and public lands in Texas, North Dakota, Pennsylvania, and a few other states will have come at an enormous cost. In order to achieve just a few years of domestic supply growth, the industry will need to drill tens of thousands of new wells (in addition to the tens of thousands brought on line in just the last three to five years), ruining landscapes, poisoning water, and forcing families to abandon their homes and farms.

This temporary surge of production may yield a very few years of lower natural gas prices and may temporarily improve the US balance of trade by reducing oil imports. What will we do with those years of reprieve? In the best instance, the fracking that has already been accomplished could provide us a bonus inning in which to
prepare for life without cheap fossil energy
. But to make use of this borrowed time we must build an energy infrastructure of wind turbines and solar panels rather than drilling rigs and pipelines. This will constitute the biggest investment, and the most ambitious project, of our lifetimes. Currently, instead, many renewable energy efforts are being hampered by the false perception of vast, long-term supplies of cheap natural gas.

We are starting the energy transition project of the 21st century far too late to altogether avert either devastating climate impacts or serious energy supply problems, but the alternative—continued reliance on fossil fuels—will ensure a future far worse, one in which even the bare survival of civilization may be in question. As we build our needed renewable energy system, we will also need to build a new kind of economy, and we must make our communities far more resilient, so as to withstand environmental and economic shocks that are inevitably on their way.

Meanwhile the fossil fuel industry is doing everything it can to convince us we don’t have to do anything at all—other than simply to keep on driving. The purveyors of oil and natural gas are selling products that we all currently use and that we still depend upon for our modern way of life. But they’re also selling a vision of the future—a vision as phony as the snake oil hawked by carnival hucksters a century ago.

SNAKE BITES

1. THE INDUSTRY SHILLS SAY:

Peak oil is crap.
World oil reserves are increasing
.

THE REALITY IS:

The industry has
overstated
world oil reserves by about a third and is working harder and harder just to stand still.

2. THE CONVENTIONAL WISDOM SAYS:

Unconventional oil (tar sands, tight oil)
will seamlessly replace the current energy output from conventional sources.

THE REALITY IS:

It takes energy to get energy. The energy returned on energy invested (EROEI) of unconventional fossil fuels is significantly worse than for conventional resources.

Oil production technology is giving us
ever-more expensive oil
with
ever-diminishing returns
for the
ever-increasing effort
that needs to be invested.

— Raymond Pierrehumbert, Professor of Geophysical Sciences, University of Chicago

Chapter One

This Is What Peak Oil Looks Like

O
il is the linchpin of our modern industrial way of life. Nearly all energy used for transport derives from it,
and transport is essential to virtually all trade. Take petroleum away and the global economy would shudder to a halt in a matter of minutes.

It wasn’t always this way. The petroleum age started when the first commercial oil well was drilled in the late 1850s, and it wasn’t until the early 20th century that energy-dense, easily portable “rock oil” found widespread use.

With automobiles, airplanes, tractors, chainsaws, diesel-fueled trains, oil-powered ships, and diesel-powered mining and road-building equipment, it became possible to intensify and expand nearly every extractive and productive process known to humankind—including the process of drilling for oil. Agriculture, fishing, mining, transportation, manufacturing, and trade burgeoned as never before, lifting billions from poverty (or undermining their more sustainable traditional ways of life, depending on how you look at it) and providing several hundred million humans with a level of amenity, convenience, and mobility undreamt of even by the pharaohs and emperors of previous eras.

All these benefits have come at a cost. The growth of extractive industries has led to increasing rates of depletion of minerals, soil, water, fish, and forests. At the same time, the expansion of industry has created burgeoning streams of waste products that nature cannot absorb. The most pervasive of industrial wastes is carbon dioxide, released when oil and other fossil fuels are burned. As ambient levels of carbon dioxide rise, the planet’s atmosphere traps more heat, changing the climate and precipitating extreme weather events, potentially leading to conditions in which civilization cannot persist.

Resource depletion and climate change are problems that undermine the survival prospects of future generations. Many people still tend to think their impacts are decades away, but we are beginning to see those impacts unfold in real time all around us.

In this chapter, we will take a whirlwind tour of a controversy that has roiled the oil and gas industry for the past decade and more. The discussion about oil supplies, reserves, and production that goes by the name of “peak oil” is complex and subtle and has often been mischaracterized or ludicrously oversimplified (“We’re running out!” versus “We’re not running out!”). It is a discussion that readers must be familiar with in order to properly understand and evaluate the claims of abundance currently being made by representatives of the fossil fuel industry. What follows is intended both as an overview of the current state of that discussion, and as an effort to set the record straight with regard to economic life-or-death issues that have sometimes been distorted by those who profit from our fossil-fueled status quo.

Peak Oil: What the Fuss Is About

Individual oil wells have a finite life span. Sometimes aggressive techniques—such as water flooding—can be deployed to extend an oil well’s life, but depletion is inexorable, and eventually every oil well reaches the point where production rates decline severely and the cost of extraction efforts exceeds the value of the oil being extracted. When that happens, the well is capped or plugged with cement, and equipment is removed from the site.

The same principle holds for larger aggregations of petroleum resources. When a new oil field is discovered, a few exploratory wells are drilled to help determine the size of the deposit and the nature of the geology. With this information, engineers determine optimum well placement and start drilling in earnest. The production rate for the oil field increases as more wells are drilled. Gradually, as older wells deplete, their production rates begin to decline, but new wells are drilled to offset those declines. Eventually, when all of the possible drilling locations have been used and production from most wells is tailing off, it becomes impossible to stave off the dwindling of the overall extraction rate.

Bundle many oil fields together and again the same principle holds. At this level of scale a pattern becomes apparent: the aggregate oil extraction rate begins to approximate a bell curve. The top of the curve represents the maximum production rate, or the peak of oil production, for the fields in question.

Most oil-producing countries—including Indonesia, the United Kingdom, Norway, and the United States—saw their national peaks in crude oil production years or decades ago. Their production declines have been offset by discoveries and production growth elsewhere in the world.

Figure 8. Norway, UK, and Indonesia Oil Production, 1980–2012.

Source: Energy Information Administration, May 2013.

But there are only so many potential oil-producing areas on our small planet. Therefore, the same peaking trend will inevitably hold for the entire world. The rate of global oil production will rise to a plateau or peak, then decline. Unless we have somehow substantially reduced our dependency on oil by the time that decline commences, the impact to the global economy will be serious-to-catastrophic. Therefore the
timing
of peak oil is of great importance.

And that’s what all the fuss is about.

Okay, When?

Oil analysts have two main ways of forecasting the timing of the global peak. One involves applying a fairly simple equation to past and current production statistics; the other is a more detailed method of adding likely flows from potential new sources and subtracting declines from existing fields (which number in the thousands). Neither method is foolproof. The data are too complex to permit the accurate forecasting of the global oil production peak to the day, month, or year. But many analysts agree that around 2005, as global crude oil production hit a plateau that continues to the present, our world entered
the peaking period
, and within a few years the global oil production rate will in all probability start to decline.

Here are some of the factors that complicate efforts to forecast the peak:

Reserves and resources.
Some analysts (in the Introduction we called them “Cornucopians”) are highly optimistic about oil’s future. They typically point to enormous reserves of oil around the world, which continue to grow—for reasons discussed below. If there’s all that oil left to extract, they ask, does it make sense to worry about an imminent peak in production rates?

Peakists reply that focusing on reserves numbers can be misleading, as not all oil is the same. Saudi oil, most of which was discovered in the 1950s and 1960s, can be produced cheaply and quickly; the oil being brought on line now from tar sands, deepwater, and tight formations will either be extracted slowly, or will require high levels of investment, or both.

Sometimes reckless oil boosters confuse
reserves
(defined as the portion of the total hydrocarbon endowment that is extractable at realistic market prices and with current technology) with
resources
—the total endowment. For example, the Green River shale formation in Colorado represents a resource base equivalent to roughly a trillion barrels of oil. If all those resources were to be counted as reserves, the United States would instantly leap to the top of the list of oil-bearing nations. However, with current technology and at current market prices, virtually no oil is being commercially produced from the Green River formation, and that situation is not likely to change anytime soon. (We’ll see why in Chapter 6.) The point cannot be overemphasized:
the peak oil discussion is about rate of supply, not size of resources or even reserves.

New discoveries.
Cornucopians often trumpet new oil discoveries, such as ultra-deepwater finds off the coast of Brazil, as undermining the notion of near-term global production peak. This would be the case if the
rate
of discovery of new oil sources were increasing (but it is not) and if the amount of new oil being discovered annually exceeded the amount being extracted from known fields annually (it doesn’t, by a long shot). The peak rate of discovery, when many large fields were being found each year, occurred globally in the early 1960s. In recent years the oil industry has found (on average) one barrel of new oil for every four or five consumed.

Figure 9. World Conventional Oil Discoveries and Production, 1930–2050.

Source: Colin Campbell, Association for the Study of Peak Oil, 2012.

Cornucopian analysts insist once again that declining discoveries are not a problem because
world oil
reserves are increasing
. However, some of this growth in reserves is illusory. In March 2012, Sir David King’s team at Oxford University’s Smith School of Enterprise and the Environment published a peer-reviewed paper in
Energy Policy
, concluding that the industry had overstated world oil reserves by about a third.
1
Most of the rest of recent reserves growth has come from reclassification of marginal resources. This has happened partly because of refinements in production technology, but mostly because oil prices have risen high enough to justify the enormous investments required to extract and process tar sands, heavy oil, and tight oil. The upshot: as reserves of regular conventional oil are consumed, they are being replaced by reserves of oil or bitumen that will be produced more slowly, at higher cost, with higher environmental risks, and with the requirement for larger investments of energy into the process of production.

Figure 10. World Declared Oil Reserves, 1980–2006.
Reserves include crude oil (including lease condensates) and natural gas plant liquids. Most upward revisions come from OPEC claims of new reserves (whose validity is hotly debated) and reclassification of tar sands and extra-heavy oil deposits as oil reserves.

Source: Energy Information Administration,
International Oil Outlook 2006
.

When a new source of supply comes on line it must first replace declines from existing fields before it can help boost overall production to a higher level. For the world as a whole, the rate of decline in production from existing oil fields is between 4 and 5% annually.
2
Thus, every three years the world needs to find brand new sources of oil that, taken together, are as productive as Saudi Arabia just to maintain a constant overall rate of production. For the past seven years, the global oil industry has been able to maintain a rough balance between declines and increases, but doing so has required substantially increased rates of drilling and capital expenditure.

Wild cards.
The likely timing of the commencement of the inevitable global oil production decline will be determined not just by geology, but also by wild cards like technology, politics, and the economy.

Technology can make oil accessible that wasn’t previously (as is the case of tight oil, which we will discuss in Chapters 2 and 3). On the other hand, political events can take oil production off-line rapidly, as happened in the 1970s with the Arab oil embargo, and as is occurring today with US sanctions against Iranian oil exports. At the same time, the condition of the economy affects oil demand: if the economy booms, demand goes up, and that leads to higher oil prices. Higher prices then stimulate efforts to produce oil that was previously uneconomic. If the economy falters, the price of oil drops and so do efforts to produce marginal sources.