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RECENT HEADLINES (“U.S. Oil Output to Overtake Saudi’s”) have interesting subtexts cited in Science, 30 November 2012, Vol. 338 and in The New York Times Magazine, December 16, 2012. The International Energy Agency started it all with its World Energy Outlook 2012. This IEA document predicted that, under the right conditions, the world will continue to produce increasing amounts of oil through 2035—enough to counter growing populations and rising standards of living.
The Science article discusses these right conditions, including an increasing exploitation of what’s known as “tight oil.” This is the stuff that doesn’t simply gush out of the ground like the black gold in the movies. Rather, it’s urged out by plumbing down to deep rock formations and hydrofracturing (“fracking,” for short) the stuff loose.
Our country’s underlying Marcellus and Utica Shale, stretching from New York to Ohio, is rich in tight oil as well as natural gas. North Dakota—with an unemployment rate of only 3 percent—is another state profiting from this.
And profiting big time. The article in The New York Times Magazine cites natural gas expansion adding three million new jobs by the end of this decade. Fracking will contribute as much as 3 percent to the U.S. G.D.P. and trillions in added tax revenue.
The fracking process is not without controversy because it involves injecting some nasty chemicals, formaldehyde, among them, into the rock formations. After some wildcat startups during the past decade—and lurid videos of water spigots belching flames—regulations have evolved to safeguard fracking procedures.
However, this adds another dimension to it all, one that’s beyond technology and economics. As the Times article notes, “Regulations are determined, in large part, by politics.” And with trillions of dollars of new wealth, who can guess the outcome?
From a technological point of view, there are also pros and cons. Abundant natural gas can help the economics of converting coal-fired utilities to cleaner production of electricity. And there’s a lot of work with natural gas liquids. However, today these NGLs, byproducts of natural gas production, end up primarily in petrochemicals, plastics and the like. According to Science, only 19 percent is currently combusted as fuel.
Also, the production rates of tight oil differ from those of conventional crude. Traditionally, an oil well gushes, then peaks, then goes into gradual decline. Fracked wells behave rather more precipitously, dropping by half within their first year of production.
Last, there are a couple of wild cards in the World Energy Outlook 2012. The IEA scenario calls for oil production in Iraq to triple between now and 2035. This is geologically possible, but the world investment climate and Iraq’s political stability are less certain.
Another uncertainty is response of the Organization of Petroleum Exporting Countries. Non-OPEC production of tight oil and natural gas inherently costs more than OPEC’s still gushing—and controllable—traditional supplies. OPEC continues to have some trump cards to play.
We’re not running out of oil, but energy matters will never be boring. ds
© Dennis Simanaitis, SimanaitisSays.com, 2012