December 05, 2005
Are oil sands the answer to peak oil? They'll help some, to be sure. But they're not a reason to ignore the issue.
Green Car Congress provides a nice summary of what this energy source involves:
Oil sands are a mixture of sand, clay, water and deposits of bitumen-- a very viscous form of oil that must be rigorously treated in order to convert it into an upgraded crude oil before it can be used in refineries to produce gasoline and other fuels. (Oil sands used to be called tar sands, to give you a sense of it.) The ratio of bitumen to everything else is relatively small: 10%-12%.
The bitumen contained in the oil sands is characterized by high densities, very high viscosities, high metal concentrations, high amounts of sulfur and a high ratio of carbon to hydrogen molecules. With a density range of 970 to 1,015 kilograms per cubic meter (8-14o API), and a viscosity at room temperature typically greater than 50,000 centipose, bitumen is a thick, black, tar-like substance that pours extremely slowly.
One of the reasons for interest in oil sands is the potential magnitudes involved. The Alberta Energy and Utilities Board estimates the ultimate volume of Canadian bitumen in-place at 2.5 trillion barrels, which if it could somehow all be extracted would be enough to satisfy by itself the entire world petroleum demand at current rates for 80 years. Even if only a tiny fraction of this proves ultimately to be developed, this would be a very important resource indeed.
Nor is the exploitation of this resource merely a theoretical possibility. Almost 40% of Canada's current crude oil production of 2.6 million barrels per day is derived from oil sands. About 1/3 of current production is from in situ methods, in which the oil sands are heated while still underground, and 2/3 from open-pit mining and above-ground processing.
So what's the catch? Huge capital requirements, for one. $34 billion (Canadian) have been invested so far in Canadian oil sands just to get to current levels, and an additional $36 billion (US) might bring Canadian bitumen production up to 2.7 mbd by 2015. To put that number in perspective, significantly more than 2.7 mbd in new capacity has to be added every year in order to replace the production that is lost from each year's depletion of existing conventional oil fields. Moreover, a large amount of energy input is required in order to produce each barrel of bitumen.
There are also significant capital requirements in order to use this synthetic crude on a larger scale. Green Car Congress had a very interesting summary last week of a report from Natural Resources Canada about Canadian oil sands:
These crude oils, whether shipped as unprocessed bitumen or in upgraded form as synthetic crude have different characteristics from conventional light and heavy crudes, and their introduction as a major proportion of the refinery crude diet will present challenges.
Most conventional refineries are limited to using about 10-15% of synthetic oil sands crude in their diets before fuels quality limitations begin to appear, according to the report.
The challenges to utilizing these crudes include the need for more "severe" processes to refine the heavy synthetic crude to duplicate fuel characteristics to which engines have become accustomed. The technology to overcome these differences is largely known, but requires significant lead-time to install.
Environmental issues are another big concern. Oil sands do not seem to involve as severe disruption as oil shale, though many of the concerns are similar. Green Car Congress summarized some of the issues about oil sands raised by the Pembina Institute, an environmental group based in Alberta, Canada. Perhaps the hardest to avoid is the increased emission of greenhouse gases, the issue that ultimately killed Australia's demonstration oil shale project.
A lot of money is needed to develop this resource. What can you do to help? Motley Fool and the Canadian Association of Petroleum Producers can give you more information about some of the investment plays here.
That is, if you don't mind earning a little cash and taking a little risk in order to help your neighbor barrel down the freeway.
Posted by James Hamilton at December 5, 2005 07:50 PMdigg this | reddit
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Jim Hamilton at Econbrowser talks about Alberta's oil sands:One of the reasons for interest in oil sands is the potential magnitudes involved. The Alberta Energy and Utilities Board estimates the ultimate volume of Canadian bitumen in-place at 2.5 tril... [Read More]
Tracked on December 7, 2005 03:14 AM
I enjoy your weblog and appreciate your insights.
I am an engineer who works in the energy industry. My perspective is that over the long term the energy supply in the world, including coal, shale, tar sands, oil, etc is for all practical purposes unlimited and accessing it is largely a question of capital and engineering. The Germans were liquifying coal into transportation fuel 70 years ago. The technology has gotten better, its just a question of cost.
If peak oil means that the marginal cost of producing transportation fuel rises over the long term, than Oil Sands development is not really so much an answer to peak oil as a symptom.
Posted by: Doug at December 5, 2005 11:40 PM
1. oil sands burn natural gas. About 0.8 mcf per barrel of oil. The Arctic Canadian pipeline (Mackenzie Delta) will supply natural gas to be burned in the tar sands fields. Total is speculating about building a nuclear power plant in Ft Macmurray, Alberta, to meet this problem.
2. the water consumption is massive - this is actually a very low precipitation area (effectively a cold desert)
There are Canadian income trusts which specialise in oil sands. The breakeven oil price is typically $18/bl for the older sites, up to $30+ for newer sites. So they are *very* geared plays on the oil price (high fixed costs). This data is available if you check the documents on these things via SEDAR (Canadian securities documents repository).
Note a US investor may have serious tax implications arising from the distribution of dividends and capital in an income trust, a structure which does not exist in the same way in US tax law. An income trust is not self replenishing in the way a conventional company is-- when the underlying resources are gone, so is the income trust. There are analogies to junk bonds in terms of the risk/ return profile.
Canadian energy companies with current or future exposure to Oil Sands include Canadian Natural Resources and Suncor. Encana has at least indirect exposure (big gas resources) and, I think, Petrocan (former state owned oil co).
Posted by: John at December 6, 2005 01:04 AM
PS I should add these stocks have shot through the roof the last 2-3 years, although they have been weak the last 3 months or so eg my holding in Canadian Natural Resources is up 5X in 3 years. Tread carefully-- you might be better off with a diversified Canadian energy play (CNR, Talisman, PetroCanada, Encana, Nexen -- but all need further investigation) which has gas and conventional oil exposure as well, than a pure 'oil sands' play.
Posted by: John at December 6, 2005 01:07 AM
A good analysis of oil sands here from somebody who works in the oil industry. He has a whole series on the "X will save us" mentality.
Posted by: M1EK at December 6, 2005 05:55 AM
Do you think GW has heard the rumors about Canadas WMD programs yet?
Posted by: Rick at December 6, 2005 10:17 AM
A combination of energy sources will be found to supply our needs. The total cost of each method will determine which combination will prevail. It would be nice to find a chart showing the relative cost with today's technology.
Corn fuel is produced in the midwest and bean fuel in Brazil largely for political reasons. The current costs as well as the long term costs to the environment makes corn and bean fuel poor choices.
Gas to liquid seems very promissing and in particular coal to liquid has the potential to replace all the depleted reserves. Cost wise the estimates suggest that coal to liquid can be achieved for a total cost in the low $40's.
Based on where investment dollars are going, it appears that oil sands is the lower cost product. The current price suggest why not do both and indeed there are several coal to gas projects in planning stages and at least a few under construction.
The problem is the very real threat from black gold. When Saudi Arabia ordered three more billion dollar rigs, it put its money where its mouth is. If Saudi can indeed boost its production by more than half over the next 5 years, a billion dollar coal to gas plant could turn into a Fuller's Folly.
Again, enough supplies will be found to meet our needs. There is no doubt because the sun is depositing more new energy on this planet than the amount we are using. The US has added 80 million acres of trees since 1920. We are doing a much better job as stewards of the planet than when we had open sewers and we burned wood in open fires.
Technology holds the final answer. Without a crystal ball, none of us know the ultimate answer but the crystal ball may be filled with abundant hydrogen.
Posted by: Jack Miller at December 6, 2005 11:53 AM
"I am an engineer who works in the energy industry. My perspective is that over the long term the energy supply in the world, including coal, shale, tar sands, oil, etc is for all practical purposes unlimited and accessing it is largely a question of capital and engineering."
Speaking as a systems analyst, even if we assume that the supplies are adequate, the interesting part of the question is one of timing. If the peak oil pessimists are right, and conventional oil production begins falling at 3-5% per year, how quickly can it be replaced? If nonconventional sources must increase output by, say, 2M barrels/day each year in order to meet the conventional shortfall, can it be done? If North American natural gas production begins a similar decline, how quickly can a substitute for that be put in place? If conservation is an important part of the answer, how much of productive capacity can be used to turn over capital stock faster than usual (transportation fleets, housing stock, etc)? Are there scenarios under which the OECD economies go into an irreversible spiral down -- that they do not have enough energy currently available to implement the transition?
Posted by: Michael Cain at December 6, 2005 02:13 PM
Corn fuel is produced in the midwest and bean fuel in Brazil largely for political reasons. The current costs as well as the long term costs to the environment makes corn and bean fuel poor choices.
It depends in part on the process... I used to work in the corn alcohol biz and for the most part it is a loser... however if it is part of an overall corn utilization strategy then it isn't so much.
Corn is not a homogenous product... it is made of starch, oil, protein & fiber... each has different values & uses... plus they are distributed in different parts of the kernel. Oil & protein in the germ at the center (produces edible corn oil & high protein feed)... next 'ring' out is starch then a gluten layer (more protein) and finally the high fiber hull.
Only the starch is used for alcohol... it's only other use is for sweeteners (like fructose & corn syrup) which is also supported by subsidies.
Many ethanol plants grind it all up and ferment the starch out of the mess (dry mills)... they have much lower capital cost but waste all the higher value germ & gluten... turn it into 'distiller's grain'... almost worthless.
The alternative is to 'wet mill'... very capital intensive.
I just heard researchers at U Illinois discuss developments in 'fractionating' corn and if done correctly the high value products (gluten & germ) can be more easily inexpensively seperated from the starch. Then using coal as a steam source (co-gen)... ethanol can be produced profitably for less than a $1/gal without subsidy. It in effect becomes a lower cost way to convert coal into liquid fuels then even the coal syngas-FT processes.
The only thing stopping this from happening on a large scale is the sugar subsidy... is is MUCH more profitable to produce corn sweetners from starch than ethanol... and the wet mill plants are usually set up to run the starch stream either way... ours was, I woked in both areas.
There is no where near enough corn to power all of US transportation... but FAR more than people realize if sugar subsidies are ever removed & the price value of starch collapses... only one route for it's use.
And we haven't even begun to discuss the possibilites of converting cellulostic products to bio-fuels... either through FT syngas routes or fermentation.
Bio-fuels offer more promise than folks not associated with agriculture realize. But like Doug (first poster) pointed out... it all depends on cost of oil. Low cost of oil & even $1/gal is too expensive.
Posted by: dryfly at December 6, 2005 06:56 PM
Timely NYTimes article on bio-diesel:
It's quite practical, but does it scale?
"... waste oils could only generate a billion gallons a year, which is 3 percent of our current diesel use... I think its overly optimistic to expect that we can replace even 10 percent of our fossil fuel needs with biodiesel."
The big advantage of biodiesel is that the US already have a significant diesel infrastructure, more in some states than in others. Opinions differ on how much biodiesel you can use in your normal diesel before needing to convert, but conversions for car engines aren't that expensive.
Then again, I was once enamored of ethanol, which I find to be kind of silly these days. Can "energy crops" be grown without requiring more energy than we get out of them? Do they end up being more polluting?
For perspective, the US uses about 130 billion gallons of gasoline and 30 billion gallons of biodiesel a year.
Posted by: Dan at December 6, 2005 10:20 PM
The EROI of tar sands is at best 5:1 and usually 3:1 whereas oil's EROI is about 20:1. There is a fundamental problem replacing a high EROI resource with one that is lower in that more energy has to be found to extract the energy that you are going to use. All the others mentioned have EROI of less that 5:1.
To make 5 million barrels per day it is estimated that this would use ALL of Canada's present natural gas output. Much of this gas is now exported to the US for electricity generation and home heating. How is the priority of gas supply to be decided ie: do you want the gas or the oil - you can't have both. Both the USA and Canada's NG supplies are depleting so you would be forced to import NG from the very regions, the middle east, that you are trying to avoid. If you have to build a nuke plant to get oil you are vastly increasing the already astronomical capital requirements of tar sand oil. It is marginal now. Again if you are going to all the trouble of building a nuke plant why not bypass the oil part. Just build it near you instead of Alberta and use the electricity to run electric cars.
Saudi Arabian oil fields are depleting and no large new fields have been found for 30 years. I do not think that they will be increasing production anytime soon except by pushing their present wells that will make the eventual depletion all the faster. Iran's largest field has just peaked. Iraq is a quagmire and I would not be counting on much oil from there anytime soon.
In my opinion there is not one 'save us' technology. It seems inevitable that we will have to make all our processes more efficient to cope with lower EROI energy sources. Reducing energy use is the best and cheapest method of helping.
Posted by: Ender at December 6, 2005 10:21 PM
I broadly agree with you.
5m b/d is about 4m mcf/day of gas (see Syncrude income trust accounts). I'm not sure what Canadian production is, but I think that the Mackenzie Delta reserves, once brought on line, will make that feasible.
On electric cars we have started to see these on the streets of London: they are exempt from the £10/day congestion charge, so subsidised to that extent. However they won't work in a typical North American city where the cars are bigger, the distances larger and the road speeds higher-- there would have to be big cultural shifts.
Since something like 90% of UK road journeys are less than 2 miles, we could actually give up most of them up and use bicycles, electric vehicles etc. And remember in the UK climate you can bicycle 90%+ of the time. Despite having gasoline at over USD 6.00/gallon, I don't see that happening. I don't know how high the gasoline price has to get before people do switch (I wouldn't, it's too scary bicycling in London).
The above gives you a sense of how big the problem is in North America, where the distances are larger, the climate harsher. Public transport will never be economic in cities with population densities of less than 10,000 per mile squared (I've heard 20k as a rule of thumb) ie 90% of North American city area.
So I'm all for conservation (and very sceptical of 'alternative' fuels) but I don't see it happening in a big hurry.
One of the tragedies of China I observed is that whereas the country ran on bicycles and buses, the new housing developments are being built without the bicycle lanes: it's just seen as working class and old fashioned to bicycle to work, rather than to drive a shiny new car. They are repeating our mistakes, with 1 billion people.
Maybe this all changes when oil is $120/bl. But gas prices in the US would only then be at UK levels *now*, and whilst we are more efficient in our energy use than you are, we still waste a lot (we use about half as much oil per head, but our GDP/head is only 60% of yours, so adjusted for standard of living and a milder climate, we are not much better off).
Posted by: John at December 7, 2005 02:20 AM
John - I live in Perth, Western Australia the most isolated city on Earth. I do have an appreciation of the distances involved and harsh climate. I take public transport every day and our population density is less that 500 people per square kilometer and Perths public transport works really well. It is a matter of adapting.
In a document "The Oil Sands of Canada" by Raymond James of Equity Research Canada says that if all planned projects go ahead gas use could climb to 2.3Bcf/d which is all the output of the Mackenzie Gas Pipline.
Our petrol is AUD$1.20 per litre which is AUD$4.8 a US gallon and we are not switching. The trouble is if we do not start soon enough there will be a huge fuel shortfall between oil getting scarce and alternatives coming on line. This could be catastrophic to our global economy that only functions with cheap transport.
Posted by: Ender at December 7, 2005 04:12 AM
Then again, I was once enamored of ethanol, which I find to be kind of silly these days. Can "energy crops" be grown without requiring more energy than we get out of them? Do they end up being more polluting?
Answer to the first question is 'yes if'... meaning yes we can get more energy from the crops than goes in but we need to change the way we grow the crops & then power the plants that make the ethanol & other fuels.
Answer to the second question is also 'yes' it can be less polluting but again we have to change the way we farm.
But both of those issues have to be tackled no matter what we do... more efficient farming & less polluting farming... regardless of fuel or food farming so they dovetail.
My major concern with fuel ethanol is that there isn't enough to power all the transportation we do now... it will remain at best a partial solution. But maybe that is best... a lot of 'partial solutions' could be more secure & stable than one single magic bullet solution.
And since starch is almost a 'waste by product'... making ethanol from corn starch is an appropriate use of the stuff IFF the other valuable by-products aren't destroyed in the process... the protein & oil. Then you don't have the food or fuel choice that has to be made... then it is food & fuel.
In the long run new crops specifically designed for fuel production will be needed... but most will be based on 'cellulose' and not 'starch'... fermenting cellulose is not practical right now (maybe some day but not now)... so gasification would be the only alternative and although it would be green house gas neutral it would be far more expensive than coal gasification. But since gasification can produce diesel or petrol... it does have long term application once coal reserves start to get squeezed and the price for it goes up (thenk Peak Coal).
There are a number of potential cellulose based crops (different parts of the world) that have HUGE productivity per acre with little energy or chemical inputs... aspen, alphalfa, elephant grass & hemp... literally tons per acre per year.
Tar sands are an even bigger waste than fuel ethanol & an environmental disaster in the making... the only way I see tar sands working is to burn it on site, convert the 'oil' into electricity... then ship the electricity to the demand locations... then dump the waste sand back in the hole it was extracted from.
The basic theme though is none of this will happen as long as oil is cheap & plentiful. But that is changing every day.
Posted by: dryfly at December 7, 2005 07:59 AM
I agree that there is not enough good crop land to make a serious dent with corn, even if it were a productive venture. I also agree that in certain situations corn fuel works; I think Miller brewing just started converting spoiled beer to fuel at a plant or two. But my original statement holds that the main reason fuel is currently being made from corn is political.
On the other hand, I disagree with you in regard to tar sands. The total costs after including the costs of heating the tar is reported to be in the low $40's. We are talking about 3 trillion barrels potential which is more corn than we can possibly grow.
A nuclear steam plant in Alberta would reduce the cost dramatically. Convert this goo for $30 or less and we would scare the pants of XOM and the Saudi King.
Posted by: Jack Miller at December 7, 2005 02:05 PM
When I was at school (Toronto) there was one kid who rode his bike *every day*. But he was mad. For 4 months of the year there is ice, snow and slush... so bicycling is a dead issue. Actually it's a dead issue for 7 months of the year, almost.
Turning to public transport, I wonder what the level of public subsidy is in Perth? We have the highest subway fares in the world (about $2.60US for a zone 1 journey) but the system still consumes over £1bn ($2bn) of subsidies per annum.
A post modern city, of the likes of Phoenix, Los Angeles, or just about any American 'edge city' will never really have mass public transport. The patterns of living and working are too dispered. Even in Toronto, which has one of hte best subway systems in North America, some of the last streetcars etc., there is as much commuting out of the City (which is a 25 X 10 mile area) as there is into it.. the commuter flow is no longer just downtown, there is more office space in the suburbs than in the downtown core.
Just to complicate the picture, very few North American cities are as big, as single political entities, as Toronto. Half of the 'population' of Toronto lives outside its boundaries: the census population of 2.3million has actually been static since the mid 1970s. Toronto is a 150 mile long, 60 mile wide urban megalopolis, that happens to have an old style 19th century 'city' at its core.
I am picking on TO because it is a City that is a 'success' as a centralised North American city: a downtown more like Melbourne or New York than like Cincinnati or Cleveland or Houston. If Toronto is a city of cars, you can imagine how the really fast growing cities in North America look-- Kansas City or Atlanta or anywhere in Florida or the Inland Empire in California.
The dream that public transport will somehow solve our problems is just that, a dream. I say this as a person who thinks you don't have a proper city until you have streetcars (trams) and who bemoans the loss of the New York elevated Trains (3rd avenue had an 'el' until the 1960s). Maybe in Europe where urban sprawl hasn't happened to the same extent (although I see suburbs sprouting up on the hills outside of Madrid).
Back to our hunger for oil. I don't see any quick alternatives. Natural gas for local vehicles yes, although as you point out the price of natural gas will rise in sympathy with the price of oil. Electrical vehicles, maybe, although the price of that energy is also linked to the oil price.
(my father built fossil fueled and nuclear plants in the 70s and 80s-- they studied this pretty intensely in trying to forecast costs and demand. The price of *all* energy sources, except hydraulic/hydropower, is linked to the price of oil, albeit with a long lag (5 years+).
What *will* happen is that the price of oil will rise, and that will drive conservation. Whilst I have a confidence in the ability of the economy to adjust in the long run, (many of my colleagues have already adjusted their lives to only commute 4 days a week), to higher prices, I think it also means we could have some pretty painful transitions on the way.
And oil sands won't save us. A useful 4m b/d, and nice for Alberta, but they won't save us.
Posted by: John at December 8, 2005 01:28 AM
The logistics, water supply, gas supply, labour and every other resource in Alberta are constrained.
Don't get mesmerised by the 250bn barrels of extractible oil. The constraint is the productive capacity.
Oil sands are more like coal mining than oil drilling.
The practical limit for production in Alberta is something like 5m b/d. This is not some saving grace in a world that consumes 80m b/d already, and wants to consume 100 m b/d in 20 years time.
In 20 years, Alberta will be producing 5m b/d of this stuff. Maybe 6-7 at a pinch. There are similar resources in Venezuela but big political and infrastructure problems. So figure Venezuala 4-5.
The problem is not the Saudis holding us to ransom. Their own socio-political problems are too big: population has tripled since the 1970s, but oil revenues have not risen (adjusted for inflation). Unemployment of 40% and GDP/head a third of what it was in 1974. The Saudis would far prefer a world of $40 oil (no competition from alternative technologies) and stable prices. But they cannot increase their production: either because they can't find the oil, or they don't have the technical resources to do it.
Each of the world's oil producers is in the same box of rising population and static oil revenues. Iran's population has doubled since 1979, and the economy has stagnated. Russia needs more oil revenues, it's how the government finances itself. The populations of Kazakhstan etc. are soaring. Venezuela and Nigeria are in the same place. There aren't any truly rich countries that produce much oil (Norway, Canada being the main exceptions).
The problem is the world cannot find the productive capacity to produce more oil. The result, long run, will be greater efficiency in use, and higher prices (driving that).
Posted by: John at December 8, 2005 01:35 AM
John - there is quite high level of public subsidy. We have a free bus service in the city that is extremely heavily used and very much valued. Perth is very dispersed however there is enough in the city to provide a market for the trains. I pay AUD3.80 for a 4 zone ride of 30km so it is pretty cheap. At peak hour it is standing room only. Perth is a city of about 1.5 million people.
You are probably right however if the oil supply gets constrained then you will have to use public transport or walk.
Jack - A nuclear steam plant does not exist so it would have to be developed from existing designs which would double the cost and building time. A normal nuclear plant at best takes approx 10 years from turning the first sod to power output. If we started now you could expect the first steam 15 to 20 years from now and costing upward of 15 billion dollars if you include develpment costs. The recent CANDU reactor was:
"Darlington was designed and built by Ontario Power Generation (then Ontario Hydro), and brought into service between 1990 and 1993 at a final cost of CDN$14.5 billion (1993 dollars). This represents almost twice the estimated final cost (capital + construction) of CDN$7.4 billion (1993 dollars) projected at the time that construction started in 1981 ."
This was a plant for the generation of electricity however according to the website I got this informatiom from the CANDU reactor is well suited.
I think that it is unlikely that the tar sand project could take an extra 14 billion dollars and be competitive.
Posted by: Ender at December 8, 2005 04:13 AM
A few points:
Jack: the cost of producing synthetic crude is a lot less than $40/barrel. When I worked at Syncrude in 98 total operating and maintenance costs were C$12/barrel. We had a goal of $10/bbl, but the rising prices of natural gas put an end to that. But it's still certainly not higher than C$20.
John: I used to rid my bike to school during Edmonton winters. The only constraint was that at -30, tire pressure would drop too low.
Also, the Gulf states (Qatar, UAE, etc.) are certainly not facing stagnant revenues.
And JDH: nobody is "ignoring" peak oil. When declining oil production becomes a problem, in 20 or 40 years, we'll adapt.
Posted by: Barry P. at December 8, 2005 05:08 AM
Darlington had peculiar problems: a lot of that extra cost was capitalised interest due to construction delays.
The reality is you would probably use a Westinghouse design, not a CANDU (CANDU needs its own supply of heavy water). Costs are probably closer to $8bn than the $14bn, but there are considerable construction risks.
You could do it, but the cost of building a nuclear plant that far away from major population and transport centres is pretty frightening. The government would have to guarantee the backers a market for surplus electricity.
I can't see the private sector undertaking it. Finland is building a new reactor, owned by its industrial consumers, but they are not dependent on one commodity price (ie oil), nor is the reactor so isolated.
The public subsidy problem is crippling to public transport. That and the fact it just doesn't work for modern working patterns, where jobs and living are so spread out (my point about not commuting downtown any more). I have friends who live in the downtown, and commute to Brampton, 40 miles West of Toronto.
Oil at $5/gal, people will still commute by driving. But they will drive more efficient cars (although 1/12 cars sold here and 1/8 in London are SUVs).
what could be done with diesels alone (if US gas stations sold high quality diesel fuel).
Posted by: John at December 8, 2005 05:10 AM
I think one of the reasons the Syncrude cost was so low is that much of hte capital expenditure is written off. From memory Syncrude has been in business for 25 years.
I think the newer sites like Horizon are talking $10bn for 250k bl/day, with breakeven costs well north of $20, more like $30.
And of course gas prices have gone up 5 times (?) since 1998! At 0.8 mcf per barrel of oil, at $12.00 spot prices that is $10/bl of gas (say $8 because your transport costs aren't as great in the Oil Patch).
The question is really when is Peak Oil. If it is 2030 I am pretty optimistic. If it is 2010 then 'Houston, we have a problem'.
Posted by: John at December 8, 2005 05:13 AM
Gulf State production is rising but not by much?
Qatar is the exception: the opening up of big new gas reserves.
Stagnant revenues: sorry I should say stagnant volumes! Revenues of course go up as the oil price does.
My point was about the demographic crisis afflicting the main oil producing states, which makes them want to increase their oil production (if they can). But whether because the oil is not there or because they don't have the engineering resources to do it, I don't know.
Kuwait is of course the other exception, AFAIK.
Posted by: John at December 8, 2005 05:34 AM
The above comments about commuting and mass transit need to consider the cause/effect relationship of the current situation. Cheap oil is the cause of suburban expansion, and expensive oil will change behaviors. A few years ago I saw data that between 1900 and 2000 the change in average commute to work time changed from thirty to thirty five minutes. Basically, as we increased the speed of travel, the distance grew, but the time remained constant.
The choice of a place of residence is always an economic trade-off, comparing the cost and amenities of living in any location. Cost includes travel time and gas cost, as well as physical asset cost.
The development of super regional shopping centers is also a product of cheap oil. Take away cheap oil and you will see the revitalization of neighborhood shopping.
A couple of years ago I was discussing the changing travel patterns of shoppers. A friend of mine who grew up in the '50s noted that his father would keep a list all week of the items he needed from town that he would pick up on his Saturday shopping trip, and that he simply would not consider driving six miles to go buy a single item at the hardware store.
Change seldom occurs overnigth, but there has never been a static condition, only slow change.
Posted by: Bill Ellis at December 8, 2005 05:52 AM
Most of the Gulf states would have been happy to increase production over the past year. But it is not as simple as "opening the taps," since most Gulf states did not have loads of exces capacity sitting around. Excess capacity costs money, and there was little sense in investing in capacity that was much above a country's OPEC quota, especially considering the price of oil from 1998-2003.
So for these countries, increasing production involves driling new wells, building surface production facilities, building new collection pipelines, more portside storage facilities and more loading facilities. This does not happen overnight. I work, peripherally, for the state oil company in one of the Gulf states. Because of stringent anti-corruption measures within the company, it takes us about 6 months to get a few textbooks delivered, so just imagine how long it will take to do all of the above as I described.
Developing the infrastructure necessary to bring a new million barrels per day on-line takes between 1 and 3 years, with the 1-year estimate being very, very optimistic.
So the binary choice of "not enough oil or not enough engineering resources" is incomplete. The variable that there is not enough of is time.
As for booming populations: Not counting Saudi, the number of births per woman is declining in the Gulf states. For example, in the UAE in 1985 the typical woman had 7 children in her life, by 2004 this was down to 4, and still dropping.
Saudi, however, is a powderkeg waiting to blow. Distributing 1/3 of the oil money to the military, 1/3 to the 20,000 strong royal family, and 1/3 to the other 16 million people is a recipe for big trouble.
Posted by: Bary P. at December 8, 2005 11:25 AM
Good point about the time lags. With sufficient time, almost any obstacle can be overcome (think the Manhattan project or the Space Programme - either did the impossible (when they were conceived) by throwing resources at a problem but also taking several years.
The entire world oil supply chain is stretched: there isn't the industrial capacity, nor the skilled manpower, to move particularly quickly-- I read somewhere the average Shell employee is over 40.
As to ramping Gulf production. The key question is whether the oil is *there* to produce. The speed of fall off of the UK North Sea is about twice what was forecast, suggesting that when reservoirs hit their natural peak, they can fall very fast as producing bodies.
If that oil is there, I have no doubt it can and will be produced-- it may take 5-10 years to get the infrastructure in place.
We haven't found a 'super' oil field like Gawar or the East Texas one since the early 1960s. Even the North Sea was only something like 25 billion barrels (production beginning in 1974, peaking in 2002 at 2m b/day?). There may be no more to find: the Caspian Sea didn't really pan out, South China Sea remains largely unexplored (I think) and after that, you have Antarctica.
Yes habits can change, and do, eg in wartime. I have no doubt most of us could go to the mall once or twice a week, not 3 or 4 times, and only commute to work 4 days a week (white collar workers).
It's harder to change the structures of cities in a hurry. The hardest break is of course planning (zoning)-- the low density that prevails in North America (the first place where the 'suburb' has been displaced as a new urban form by the 'exurb', the 'ruburb' and the 'edge City') took almost 100 years to build (the first suburbs, in places like Cleveland, where streetcar suburbs, with ferocious battles between the affluent who did not want the 'hoi poloi' moving to their areas because the streetcar allowed them to commute to work!).
So it cannot be unwound in a hurry. The world that grew up in America with the Interstate, the great move South and Southwest (and therefore/ in consequence of the rise of airconditioning) to the low density cities of those areas, and within cities (eg Westchester Country or New Jersey), cannot be easily reversed. Americans aren't going to move from Phoenix back to Detroit in a hurry. Nor is downtown Phoenix going to be a 'somewhere', quickly, having been a 'nowhere' for most of the past 50 years. Most ?Phoenicians? will still live in far-flung suburbs.
(interesting story in this week's newsweek. Family in Ohio, moved to their dream home around 2000 with 6 bedrooms. When their daughters go off to college, they are planning to quickly trade down-- their heating bill has gone from $300 per month to nearly $1000, and they cannot cope).
Europe has denser cities and populations, and much better public transport. But as Matthew Simmonds points out, Europe also has no rail capacity for freight-- we move everything by truck. So we, too, have a problem in an age of expensive oil.
Posted by: John at December 10, 2005 10:12 AM
Comparing the challenge of oil depletion with the Manhattan Project or the space program is off the mark.
Life on the planet would have gone on quite nicely if either or both had failed. In other words, they were both projects where a successful outcome was nice but optional. Oil depletion is so different as a challenge that I find these comparisons meaningless. Our way of life is predicated on affordable energy. When energy costs, as a percentage of income, double and triple, the outcome will be social turbulence. A failure to get to the moon or blow up a major Japanese city doesn't remotely compare with the failure to rise to the challenge of diminishing energy. We are detritovores running down our inheritance at an alarming rate. Here in the US each of us is a homo-colossus using the energy equivalent of a retinue of 50 slaves. Slaves we don't have to feed, shelter or clothe.
We have had the good fortune to live during a period in which the cooks of technology have baked up some delicious dishes from science recipes of the twentieth century master chefs. Those chefs where, for the most part, european physicists creating quantum delicacies. Today we puff ourselves up and, like the cock, think we make the sun rise by our crowing. Not so. Alas, we are lowly cooks standing on the shoulders of giants. If anything we are more like a milling crowd of hominid chimp knockoffs wandering listlessly through the Walmarts of the world. Face it, the average human on this planet is innumerate yet we pride ourselves on a technology that, I think Asimov said, is so complex it is indistinguishable from magic.
In contrast to the space program and Manhattan project, look at the practical achievements of fusion research for the last twenty years. Where are we? Nowhere. Last I heard we are still unable to predict a date for a fusion reactor that can even be net energy positive let alone one capable of powering a city. Billions have gone into that research. Perhaps fusion is the exception that makes the rule. In that case it was one hell of an exception. And it throws a bad light on your assertion that given enough time and resources any problem can be solved. Fusion may well be a technically impractical technology. And that's a real shame because we had most of our eggs in that basket. Now they're on our face.
Fusion and fission, as you may recall, were the great white hopes of the fifties and sixties. At that time there was no perceived pressing need to conserve energy because, as my high school science teacher was fond of quipping, energy would be so cheap in twenty years that it wouldn't be worth putting meters on houses. I kid you not. According to Mr. Burrington it would be like my internet connection - a small fixed monthly fee regardless of kilowatts used.
I agree generally with the rest of your comments but felt compelled to counter this stupid meme that we can solve any damn problem to which we put our collective minds and resources. That's BS backed by lame examples.
The fact of the matter is that we are like the drunk looking for his keys under the lamp post because "that's where the light is." We solve some very tough problems but they happen to be in an area where technology has produced the necessary illumination for their solution. I don't think our Scylla and Charbydis, global warming and energy depletion, fit this description. If anything, technology is exacerbating the problems by letting us extract faster and burn more.
GM is proud to point out that they feel they are doing a better thing by improving the MPG of a Hummer from 10 mpg to 11 mpg than by improving the MPG of their sedans from 30 mpg to 40 mpg. Here's their logic. They claim that in 12,000 miles of driving the increase of 1 mpg for the Hummer will result in a savings of 109 gallons of fuel. On the other hand, the increase of 10 mpg for the sedan would only result in a saving of 100 gallons for the same mileage. I point this out as an example of the kind of thinking going on in the corridors of corporate power. Who needs enemies when your friends think like this?
Regarding new oil strikes, you overlook the most ironic place - the newly ice free Arctic waters. Wouldn't it be just too funny if global warming has opened up new discoveries with hundreds of billions of barrels? Our technical recipes are, in short, liable to cook our collective goose.
By the way, they call themselves Phoenixians, being mostly Republicans with no sense of shame. It's a portmanteau of Feenamint (a chewing gum laxative) and Nixon (a dead president)
Posted by: LJR at January 23, 2006 11:13 AM
Which energy companies are good investments (if any) at today's prices?
Any Oil-Sand plays (Encana, Opti, Nexen, Canadian National Resources, Suncor, etc)worth looking at (again, at what price)?
Any gas plays worth looking at in order to hedge given the amount used in extracting it from the tar sands?
If I'm going to get stuck paying for the stuff at the pump I figure I can offset some of the costs by pumping some money into the source - the question is - which plays, and at what price?
Posted by: Texas Jimmy at February 18, 2006 12:55 PM
I am interesting to start work with oil sand at Alberta, but it is hard to get some information how to get jobs there. So it would be grate if there is someone that could write done or send me some good information, because I want to start to work there..
Posted by: Aso at March 24, 2006 06:33 AM
best bet for energy plays are north amer ng producer, since both ng prices and stock prices are currently low. ng will be use for steam to extract oil sands. one stock to consider is apsn.ob, small, growing and basically undiscovered.
Posted by: jeff at May 13, 2006 10:13 PM
I am interesting to start work with Oil Sand in Alberta. But it is hard to get some information how to get jobs there. So it would be grate if there is someone that could write done or send me some good information, because I want to start to work there..
Posted by: Franklyn Allard at June 16, 2006 05:24 PM
I am interested in job info about the oil sands industry.
Posted by: Delbert Emerson at July 9, 2006 06:27 AM
Im ready to go!
I want to work on the Oil Sands in Alberta. Looking for on site housing, with immediate starting!
If YOU are hiring of have any info where i can look PLEASE email me.
Posted by: James' the guy who's looking for WORK!! at August 7, 2006 01:31 PM
I visited Ft McMurray and the oil sands this summer. It appears to me they don't use natural gas for heat or steam as several posts suggest. They use natural gas to produce hydrogen to use in upgrading the bitumen i.e. making it more like oil.
Reminds me of my favorite question for people who think hydrogen cars are the future. Where is the hydrogen coming from?
Posted by: Harold at September 13, 2006 08:54 AM