Guest post by David Middleton
GOP presidential candidate Mitt Romney recently released an outline of his plan to achieve “North American energy independence” by 2020. While the white paper (1) is short on specific details, it does contain quite a few good ideas and some supporting documentation. For anyone interested in a business plan approach to energy policy, it’s well worth reading. Rather than focus on the details of the plan, I thought it would be an interesting exercise to see if “North American energy independence by 2020” was even technically possible. If it’s not technically possible, then it’s not really relevant whether or not it would be economically advisable or politically achievable. Since North America already pretty well has the capacity to be energy independent in terms of coal, natural gas, uranium and electricity generation, I’m only going to look at oil and natural gas liquids.
So, without any further prologue, I’m going to jump right into some numbers.
Can we “get there from here”?
According to the American Petroleum Institute (2) the current estimate of undiscovered technically recoverable Federal resources (UTRR-Fed) of crude oil currently stands at 116.3 billion barrels.
The UTRR-Fed are concentrated in areas close to existing exploration and exploitation infrastructure. The Gulf of Mexico, Alaska and the Lower 48 States comprise 88% of the UTRR-Fed.
|Region||Offshore/Onshore||Billions of Barrels of Crude Oil||%||Cum. %|
|Gulf of Mexico||Offshore||44.9||39%||39%|
There is no reason that these potential resources could not be exploited within the next few decades if the U.S. government adopted regulatory policies geared toward exploitation.
If industry converted the UTRR-Fed into proved developed producing reserves of crude oil over the next 25 years, this is what might happen to U.S. domestic crude oil production:
I think that it is technically possible that US crude oil and natural gas liquid production could reach 14.4 million BOPD by 2028 and peak at 15.7 million BOPD by 2032. If U.S. demand remained in the 18-20 million BOPD range, the United States could come very close to being self-sufficient in crude oil. I also took the liberty of including 73 billion barrels of Green River Oil Shale production from 2022-2100 (more on this later).
Canada expects to double its oil production by 2030 (3). Assuming that Canada’s domestic consumption remains stable and the U.S. remains Canada’s primary export market, Canadian imports could also be expected to double by 2030. While Mexican oil production is currently in decline and Pemex is one of the most poorly managed national oil companies (NOC) in the world, Mexico has huge potential in the area of undiscovered resources (4). Mexico does have the potential to stabilize its current production levels. If Canada doubles its production by 2030 and continues to increase its production through the end of this century and Mexico stabilizes at roughly its current levels, this is what U.S. domestic production plus Canadian and Mexican imports might look like:
Based on these numbers, North American energy independence could be achieved by 2027.
116 billion barrels of ”undiscovered technically recoverable oil” is equal to about 16 years worth of current US consumption. However, past history shows us that gov’t agencies always grossly underestimate what the oil industry will find and produce. Alaska’s North Slope has already produced 16 billion barrels of petroleum liquids. Currently developed areas will ultimately produce a total of about 30 billion barrels. The government’s original forecast for the North Slope’s total production was 10 billion barrels. The current USGS estimate for undiscovered oil in the Bakken play of Montana & North Dakota is 25 times larger than the same agency’s 1995 estimate. In 1987, the MMS undiscovered resource estimate for the Gulf of Mexico was 9 billion barrels. Today it is 45 billion barrels (2).
The MMS increased the estimate of undiscovered oil in the Gulf of Mexico from 9 billion barrels in 1987 to the current 45 billion barrels because we discovered a helluva a lot more than 9 billion barrels in the Gulf over the last 20 years. Almost all of the large US fields discovered since 1988 were discovered in the deepwater of the Gulf of Mexico. In 1988, it was unclear whether or not the deepwater plays would prove to be economic.The largest field in the Gulf of Mexico, Shell’s Mars Field, was discovered in 1989. Prior to this discovery, no one thought that economically viable Miocene-aged or older reservoirs existed in deepwater. Mars has produced 1 billion barrels of oil and 1.25 TCF of natural gas since coming on line in 1996. It is currently producing over 100,000 barrels of oil per day. Dozens of Mars-class fields have been discovered over the last 20 years… Most of those have only barely come on line over the last 5 years.
The most significant play in the Gulf of Mexico, the Lower Tertiary, wasn’t even a figment of anyone’s imagination in 1988. These are massive discoveries – BP’s recently discovered Tiber Field on Keathly Canyon Block 102 is estimated to contain 3-6 billion barrels of recoverable oil. Several recently discovered fields are expected to come on line at more than 100,000 bbl/day. This play is still in its infancy.
Based on the gov’t’s track record, the estimated 116 billion barrels of undiscovered oil under Federal lands is more likely to be 680 billion barrels. That’s close to 100 years worth of current US consumption – And that’s just the undiscovered oil under Federal mineral leases.
When you factor in shale oil (kerogen) plays, the numbers become staggering. The Green River formation oil shale has more than 1 trillion barrels of recoverable oil just in the Piceance Basin of Colorado.
- There are at least 1.8 trillion barrels of undiscovered technically recoverable oil in just the Green River formation (DOE).
- Oil shale deposits like the Green River formation (technically a marl) are currently economic at sustained oil prices of $54/bbl, possibly as low as $35/bbl (DOE).
In my hypothetical production forecast, I projected Green River oil shale production to reach 15 million BOPD by 2096. Am I being overly optimistic in projecting more than 15 million barrels per day (BOPD) of production from oil shales by 2100? Shell estimates that they could be producing 500,000 barrels per day from the Picenance Basin with a very small footprint using an in situ recovery process (5):
Shell has tested its in-situ process at a very small scale on Shell’s private holdings in the Piceance Basin. The energy yield of the extracted liquid and gas is equal to that predicted by the standardized assay test.13 The heating energy required for this process equals about one-sixth the energy value of the extracted product. These tests have indicated that the process may be technically and economically viable.
This approach requires no subsurface mining and thus may be capable of achieving high resource recovery in the deepest and thickest portions of the U.S. oil shale resource. Most important, the Shell in-situ process can be implemented without the massive disturbance to land that would be caused by the only other method capable of high energy/resource recovery—namely, deep surface mining combined with surface retorting. The footprint of this approach is exceptionally small. When applied to the thickest oil shale deposits of the Piceance Basin, drilling in about 150 acres per year could support sustained production of a half-million barrels of oil per day and 500 billion cubic feet per year of natural gas.
Once oil shale development reaches the production growth stage, how fast and how large the industry grows will depend on the economic competitiveness of shale derived oil with other liquid fuels and on how the issues raised in Chapter Five are ultimately resolved. If long lead-time activities are started in the prior stage, the first follow-on commercial operations could begin production within four years. Counting from the start of the production growth stage and assuming that 200,000 barrels per day of increased production capacity can be added each year, total production would reach 1 million barrels per day in seven years, 2 million barrels per day in 12 years, and 3 million barrels in 17 years.
Assuming a 12-yr lead time to reach the production growth stage, it will take ~30 years to reach 3 million barrels per day. If production continued to grow at a rate of 1 million BOPD every 5 years… Oil shale production from just the Piceance Basin could reach 15 million BOPD by the end of this century.
The hydrocarbon characteristics of the the oil shales of the Green River formation in the Piceance Basin are superior to those of the Athabasca oil sands. The hydrocarbon areal density is about 13 times that of the Athabasca deposits. The Green River hydrocarbons are not technically “oil;” it’s a form of kerogen. But, for or refining purposes, it’s oil. It will be booked as oil, just like the Athabasca tar sand oil is. It’s a high-grade refinery feedstock…
Canada is currently producing ~ 1 million barrels of oil per day from Athabasca oil sand deposits. They expect to increase that to 2 million barrels per day over the next decade. The Green River oil shale deposits in the Piceance basin could easily outperform Athabasca within a decade and with a much smaller environmental footprint.
Athabasca oil sands are currently economically competitive with the OPEC basket. Green River formation oil shales are superior, by a wide margin, to Athabasca oil sands. The Green River oil shales would yield 100,000 bbl of 38° API sweet refinery feed per 160,000 tons of ore & overburden. Athabasca oil sands yield 100,000 bbl of 34° sweet refinery feed per 430,000 tons of ore & overburden. The unconventional oil is actually very light and very sweet; the OPEC Basket is actually heavier (32.7° API).
Athabasca is economically competitive now. Green River could be economically competitive now. The only obstacles to US energy security are environmental
terrorists activists and the U.S. government.
“Peak Oil,” if it exists, won’t be reached for hundreds of years if the U.S. government would just get out of the way. About 80% of the most prospective Green River deposits are under Federal leases. The Obama administration effectively blocked exploitation of the Green River oil shale earlier this year.
Does Policy Matter?
Bad policy certainly matters. “One bipartisan policy tradition is to deny Americans the use of our own resources” (6):
The Obama administration’s energy policy has been disastrous as it relates to oil production. While it is true that U.S. domestic oil production has been rising over the last few years, all of the growth has come from onshore plays in Texas and North Dakota:
Some of the Texas (less than 1%) and North Dakota (~11%) production is from Federal leases. I downloaded the onshore Federal lease production data for Texas and North Dakota from Office of Natural Resource Revenue (ONRR) and subtracted the minuscule Federal lease production from the State and private lease production in those two States. I added that to theFederal Gulf of Mexico production (the GOM is the Big Kahuna of Federal lease oil production):
All of the net growth in US domestic oil production since 2009 has come from State and private leases in Texas and North Dakota.
Since President Obama took office, Federal lease oil production in the GOM, TX and ND has declined by 79 million barrels per year; while State and private lease production in TX & ND has grown by 205 million barrels per year. The decline in Gulf of Mexico has occurred during a period of high oil prices and is directly attributable to the unlawful drilling moratorium and “permitorium” imposed in the wake of the Macondo blowout and oil spill. Drilling permits that once took 30 days to be approved now take more than 300 days. Even relatively simple things like the approval of development plan (DOCD) revisions are being drawn out to nearly 300 days. The average delays for independent oil companies are currently 1.4 years on the shelf and almost 2 years in deepwater (7):
Between the “permitorium” and high product prices, many of the best, most capable drilling rigs have been moved overseas. Once we manage to get permits approved, the delays in obtaining a rig can be almost as long as the permit delays were. In this “dynamic regulatory environment,” wells can’t be drilled quickly enough to compensate for decline rates, much less to increase production.
(1) Romney for President, Inc. 2012. “The Romney Plan for a Stronger Middle Class: Energy Independence.”
(2) American Petroleum Institute. 2012. “Energizing America: Facts for Addressing Energy Policy.”
(3) CBC News. 2012. Canadian oil production to double by 2030, industry predicts.
(4) Talwani, Manik. 2011. “Oil and Gas in Mexico: Geology, Production Rates and Reserves.” James Baker III Institute for Public Policy.
(5) Bartis, James T. 2005. “Oil shale development in the United States : prospects and policy issues.” RAND Corporation.
(6) Ford, Harold. 2011. “Washington vs. Energy Security.” The Wall Street Journal.
(7) Quest Offshore. 2o11. “The State of the Offshore U.S. Oil and Gas Industry.”