Tim Dunn, CEO of Crown Quest Operating and board member of the Texas Public Policy Foundation, continues his primer on energy. His earlier posts can be found here.
The 5-minute ENERGY Blog
POST 4: OIL-HATERS AND ENERGY-CRATS
One of the main arguments advanced by oil-haters amounts to this: we need to stop using oil now because we may run out some day. Isn’t that sort of like saying we should die now because we won’t live forever?
And will we really run out some day?
Actually, oil is being generated all the time. The “biofuel” industry uses man-made manufacturing processes to simulate what the earth does every day: cook plant material and generate oil. I don’t think we will ever see an end to the green, organic, naturally occurring, plant-stored solar power miracle fuel, oil. The primary problem is one of accessibility. The harder something is to access the more it will cost, at least for a while.
In POST 2 I made the argument that American natural gas prices increased to the point that entrepreneurs found ways to economically produce supplies more difficult to access, and now the price has dropped to very low levels due to increases in technology. The same sort of thing is likely to take place with other energy sources (unless of course we allow energy-crats to start a rationing program.)
Just like in a game of Battleship, where the larger aircraft carriers get found first, the big oil fields are easiest to find, and they produce oil at a higher rate than the small ones. The Ghawar field in Saudi Arabia is probably the most prolific oil field in the world. When I worked on the field in 1979 as a young Exxon engineer fresh out of college, it produced around seven million barrels per day out of only a couple hundred wells.
Some of the veterans told me the field was found by a geologist with a telescope – from the nearby island of Bahrain. The enormous coral complex buried almost two miles under ground that contains the oil is so large it creates a hill on the surface; what the geologist observed with his telescope.
In time smaller, more difficult to produce fields get found. Since the oil industry as we know it was largely invented by Americans, the United States was developed preferentially. The US currently produces less than ten percent of the world’s daily oil production but still runs half the world’s drilling rigs. Oil production peaked in the US in the early 1970’s and declined until just recently. You can read all about “Peak Oil” here: http://en.wikipedia.org/wiki/Hubbert_peak_theory
In my last post I mentioned that an American’s daily need for 2200 Calories from food is equaled by only four 13 ounce bottles of oil, and each bottle would only cost about a quarter. But only a few years ago it was less than a dime per bottle. I think this Peak Oil theory is accurate when applied to the easy-to-access oil the industry focused on until recently.
But once the price went from ten cents per “coke can” to twenty five cents oil entrepreneurs went to work. In Canada, they started accessing oil so heavy it won’t flow. It requires steam heating and processing before it is useful. At the higher price of twenty five cents per “coke can” that is now profitable. Canada comes just after Saudi Arabia in oil reserves; they just aren’t the easy-to-access sort. http://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves
I spoke with a guy developing some of these Canadian reserves. He told me they spent a hundred and fifty million dollars building a road just to get trucks and equipment to an oil field. But at the higher price for oil, entrepreneurs find a way and paying the cost of access is part of it.
Canadian oil producers now expect production to double in the next fifteen years. http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/2011-Oil-Forecast.aspx
Higher prices make it worthwhile to pay the additional cost to recover oil supplies that aren’t more easily accessed like the oil at the “conventional” Ghawar Field.
By the way, since the Obama Administration killed the Keystone Pipeline, Canada will sell their oil to Asia. http://www.commentarymagazine.com/2012/04/03/china-canada-oil-and-obama/ So our Energy-crats spurned nearby oil supplies from friendly, politically stable Canada in favor of imports from… Venezuela. Want to turn over more decisions about our economy’s “food supply” to the Energy-crats?
We all prefer cheap prices, but the recent price increase will be a part of ensuring ample supplies of this miracle fuel, that even at the higher price of twenty five cents per “coke can” costs less than half the price of a comparable amount of carbonated sugar water. Natural gas supplies are now seemingly endless, and if you owned a compressed natural gas car you would be driving for the gasoline equivalent of forty cents per gallon (before taxes.) But first natural gas prices went from $2 to $8.
And in fact, something similar is happening in the US oil sector. More on that in the next Post.