Currently the media is filled with stories about a so called "Energy Revolution" that has occurred and is supposedly unleashing vast quantities of heretofore unknown or unusable hydrocarbon resources - mostly oil and natural gas.
This is nothing less than the intellectual fraud or our times and what we are seeing now actually just another bubble. It's an intellectual fraud almost on a par with the "new economy" of the dot com era and the crazy idea of 10 years ago that the housing market could not see a general contraction.
In a nutshell the idea is that a technological revolution has occurred over the past 10 years that has allowed the oil and gas industry to a) discover reserves they did not know about before and/or b) exploit reserves that were known about but to expensive prior to this "revolution" to exploit.
When the discussion moves to what exactly this technological revolution is the discussion gets hazy fast. Or downright inaccurate to an almost silly level.
Before I get into more details on this fraud let me tell you what has occurred: the price of oil has remained high enough for long enough so that long known about reserves of expensive and dirty oil can be exploited at a profit. The price has remained high because the ready supply of conventional light sweet crude is no longer enough to supply world demand and there no other choice but to either exploit expensive dirty oil or use more unconventional sources (solar and wind specifically). Both are happening.
What is my evidence? Exhibit A is the price of oil. As I write this the price of WTI crude is 95.61. Adjusted for inflation the price during the 1979 oil shock didn't even reach 80. The price of crude oil gained consistently from 2000 to 2008 and peaked at a bit over 135 in the summer of 2008 before dropping to just under 75 and then going back up to a consistent range of between 85 and 105 for several years.
The marginal cost of production of Saudi Crude is about 12/barrel, and the marginal cost of production of conventional Texas crude is about 25/barrel. The marginal cost of (fracked) oil in North Dakota is about 80/barrel.
From http://www.reuters.com/article/2009/07/28/oil-cost-factbox-idUSLS12407420090728
If there was enough in the first two lines above (conventional oil) to satisfy world demand then the price would collapse from what it is now (95.61) to at least 40/barrel (perhaps lower) and heavy oil/shale production would evaporate.
We have had a revolution all right but it has been a economic revolution. Oil prices are now persistently high enough to make it economic to exploit expensive dirty oil.
Lets look at some of the details of the "technological revolution" fraud.
Lets start here:
By | Associated Press
http://finance.yahoo.com/news/technology-propels-old-energy-boom-155331085.html
what are the nuts and bolts of this "revolution?" horizontal drilling and fracking. Fact: horizontal drilling has been done since the 1930's and fracking since the 1960's. At no time then or now could they get the process such that the oil drilled would be price competitive with conventional oil. This article also talks about "imaging techniques" and "computer technology". Both are of course used and both are better now then they used to but it's a fraud to call them revolutionary in the sense of enabling a technological hydrocarbon boom. Fact: nothing revolutionary from a technological standpoint has happened in this industry in the last 20 years.
The power of this "technology propels energy boom" story is that it tells us what we want to hear (and not coincidentally what the oil industry wants us to believe). Reality is not so nice. Also, reality is more complex. A simple happy story sells - remember room temperature nuclear fusion? A complex story about high prices and hard choices does not sell.
This current happy story is so compelling that we now read things reminiscent of the dot com boom:
The Dark Side of Energy Independence says: "America’s oil and gas bonanza will drive down global energy prices, undercutting the foundations of petrostates everywhere " Talk about wishful thinking! The price of oil has not even dropped at all (see data above). The Dark Side of Energy Independence is filled with the kind of overconfident/wishful thinking we saw during the late 90's.
Power Shift "Energy Boom Dawning in America" has more happy story/overconfident talk.
This is nothing less than the intellectual fraud or our times and what we are seeing now actually just another bubble. It's an intellectual fraud almost on a par with the "new economy" of the dot com era and the crazy idea of 10 years ago that the housing market could not see a general contraction.
In a nutshell the idea is that a technological revolution has occurred over the past 10 years that has allowed the oil and gas industry to a) discover reserves they did not know about before and/or b) exploit reserves that were known about but to expensive prior to this "revolution" to exploit.
When the discussion moves to what exactly this technological revolution is the discussion gets hazy fast. Or downright inaccurate to an almost silly level.
Before I get into more details on this fraud let me tell you what has occurred: the price of oil has remained high enough for long enough so that long known about reserves of expensive and dirty oil can be exploited at a profit. The price has remained high because the ready supply of conventional light sweet crude is no longer enough to supply world demand and there no other choice but to either exploit expensive dirty oil or use more unconventional sources (solar and wind specifically). Both are happening.
What is my evidence? Exhibit A is the price of oil. As I write this the price of WTI crude is 95.61. Adjusted for inflation the price during the 1979 oil shock didn't even reach 80. The price of crude oil gained consistently from 2000 to 2008 and peaked at a bit over 135 in the summer of 2008 before dropping to just under 75 and then going back up to a consistent range of between 85 and 105 for several years.
The marginal cost of production of Saudi Crude is about 12/barrel, and the marginal cost of production of conventional Texas crude is about 25/barrel. The marginal cost of (fracked) oil in North Dakota is about 80/barrel.
From http://www.reuters.com/article/2009/07/28/oil-cost-factbox-idUSLS12407420090728
Oilfields Estimated Production /source Costs ($ 2008) Mideast/N.Africa oilfields 6 - 28 Other conventional oilfields 6 - 39 CO2 enhanced oil recovery 30 - 80 Deep/ultra-deep-water oilfields 32 - 65 Enhanced oil recovery 32 - 82 Arctic oilfields 32 - 100 Heavy oil/bitumen 32 - 68 Oil shales 52 - 113 Gas to liquids 38 - 113 Coal to liquids 60 - 113
If there was enough in the first two lines above (conventional oil) to satisfy world demand then the price would collapse from what it is now (95.61) to at least 40/barrel (perhaps lower) and heavy oil/shale production would evaporate.
We have had a revolution all right but it has been a economic revolution. Oil prices are now persistently high enough to make it economic to exploit expensive dirty oil.
Lets look at some of the details of the "technological revolution" fraud.
Lets start here:
New technology propels 'old energy' boom
By | Associated Presshttp://finance.yahoo.com/news/technology-propels-old-energy-boom-155331085.html
what are the nuts and bolts of this "revolution?" horizontal drilling and fracking. Fact: horizontal drilling has been done since the 1930's and fracking since the 1960's. At no time then or now could they get the process such that the oil drilled would be price competitive with conventional oil. This article also talks about "imaging techniques" and "computer technology". Both are of course used and both are better now then they used to but it's a fraud to call them revolutionary in the sense of enabling a technological hydrocarbon boom. Fact: nothing revolutionary from a technological standpoint has happened in this industry in the last 20 years.
The power of this "technology propels energy boom" story is that it tells us what we want to hear (and not coincidentally what the oil industry wants us to believe). Reality is not so nice. Also, reality is more complex. A simple happy story sells - remember room temperature nuclear fusion? A complex story about high prices and hard choices does not sell.
This current happy story is so compelling that we now read things reminiscent of the dot com boom:
The Dark Side of Energy Independence says: "America’s oil and gas bonanza will drive down global energy prices, undercutting the foundations of petrostates everywhere " Talk about wishful thinking! The price of oil has not even dropped at all (see data above). The Dark Side of Energy Independence is filled with the kind of overconfident/wishful thinking we saw during the late 90's.
Power Shift "Energy Boom Dawning in America" has more happy story/overconfident talk.
And here's an article on exporting natural gas. Talk about counting your chickens before they hatch!
And here is something on the glorious wonders we see as the Energy Boom begins to ripple through the US economy.
In these stories we hear talk about how a) the U.S. will soon be energy independent, b) the U.S. will overtake Saudi Arabia in production c) the price of oil and natural gas will drop. d) it's all based on a technological (not economic) revolution.
But wait a minute....the price has not dropped (as I discussed above). Notice how those articles either completely miss that point or skirt around it. The problem is that the steady high price of oil over the very same time frame as this so called "technological revolution" blows a huge hole in the argument.
The facts are that pretty much the same technology is used now as was tried in 1979 (and earlier) but now the price of oil is high enough to make it economical. What we have had is an economic revolution not a technological revolution.
There is plenty of dirty, hard to get unconventional oil and other hydrocarbons out there (and we knew a lot about them in Jimmy Carters time) but we have not had a technological revolution that has lowered the price. We exploiting these expensive and dirty sources now because we have no better choice. In 1995 we did have a better choice.
What will happen now? The price of oil will continue it's long steady march upward (with some reversals of course) - because the easy oil is always drilled first. Conventional crude was preferred over unconventional because it's easier and cheaper, and the easiest unconventional crude will also be drilled first. The era of cheap oil is over and the price will continue to rise.
It appears that the lowest cost alternative energy is wind and the cost equivalent energy price of wind is approaching that of some fossil fuels. Once oil is more expensive than wind (or solar) on an energy equivalent basis we will see wind (or solar) energy explode. That day is coming and that will be the real news.
