Drill Baby, Drill and Climate Change Game Over: US Oil Production Hit Record Growth In 2012

Fracking in Pinedale

(A Fracking Operation in Pinedale, Wyoming. Image source: here)

According to this report in the Wall Street Journal, US ‘oil’ production surged by 14 percent in 2012 to nearly 9 million barrels per day (this figure includes natural gas liquids, hence the quotations, actual crude oil production was about 7 million barrels per day).

This surge in production was fueled, primarily, by a broad application of hydrolic fracturing technology to enhance the rate at which oil and related fuels are squeezed from the ground. Little in the way of new discoveries have resulted in this enhanced flow of climate fire-juice. Instead, new technologies have been aimed at the old, tired, or difficult to reach sources in order to squeeze more from the ground.

It’s a tough gamble for oil and gas companies. The reason is that a massive investment in new drilling rigs and an ever increasing number of fracked wells is required to sustain this large pulse of new oil. By end of 2012, more than 43,500 wells had been drilled, and, perhaps more importantly, a record 19,000 wells were fracked over the same period. All this drilling and fracking activity costs a lot of money. So a price of oil above 95 dollars is required to sustain most marginal operators.

Tellingly, with a slight fall in world oil prices over the past spring, the rate of new wells drilled had dropped and is projected to fall below 2012 numbers by about 1,500 to around 42,000 by end of 2013. US natural gas production has already leveled off due to lower prices and a large portion of this rig count drop includes the lag due to lower natural gas prices. But traditional oil well drilling is also sliding off. So the new focus is primarily on tight oil and oil shale fracking.

Fracking is an energy and water intensive process that costs much more than a traditional oil well. It also results in increased risks of ground-water contamination. So communities across the US have been forced to choose between oil and gas extraction, and keeping their water supplies safe. There is also a longer-term choice on global climate, which we’ll discuss more in detail below.

As noted above, marginal prices need to remain above 95 dollars per barrel for the highest cost operators to make a profit. Embedded in this high marginal price for shale oil is the fact that most fracked wells have a high depletion rate. The result is that flows from these wells drop off dramatically over time. So more and more wells need to be fracked each year to keep overall flow rates high. The end result is that fracked well production creates a net cliff in fracking dependent oil in a 10-15 year time-frame. New basins of fractured oil will, therefore, need to be accessed to keep flow rates high.

Nonetheless, the US is likely to continue to see higher rates of oil production over the coming 5-10 years due to this fracking boom. But at the cost of much more expensive oil and ever-increasing damage to the world’s climate.

Fracking Climate Change Game Over

Oil fracking is a form of enhanced oil extraction. As such, it enables a more rapid extraction of existing oil reserves and, to  a degree, opens reserves that were previously uneconomic to extract. Since less than 1/3 of current fossil fuel reserves can be burned while still maintaining a vague hope of keeping warming below the dangerous 2 degrees Celsius threshold by the end of this century, the race to drill and frack more wells and increase oil production is a race toward climate change game over.

Fracking also results in large methane seeps from fractured wells. These seeps are not included in fossil fuel reserves, yet they still end up in the atmosphere. And since methane is, over 20 years, 105 times more potent than CO2 as a warming agent, this extra emission is a very bad additive to an already warming climate.

The net result is we’ve tapped a more carbon intensive technology to burn more oil faster. In metaphor, we’ve decided not to jog, but to sprint headlong toward the climate cliff.

At current emissions rates and emissions growth rates, the world says farewell to any possibility of preventing a 2 degrees Celsius warming by century’s end sometime around 2025.

Links:

EIA

Record-breaking 19,000 New Wells to be Fracked in 2012

Slower Pace of Drilling Likely For US and Canada During 2013

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Romney Gunning to Kill US Wind, Solar Industries, Enforce Monopoly of Dirty, Dangerous, and Depleting Fuels

Today Mitt Romney held a speech on the border of Texas and New Mexico where he laid out his plans for the US’s energy future. And if two words come to mind from his proposals they are these: Robbery and Ruin.

Just yesterday, Romney received more than $10 million dollars in campaign contributions from the coal and oil industry. Money he is trying to hand back many times over in special perks, subsidies, and give-aways to his big polluting backers.

First, Romney proposes to take public lands from the people of the US and hand it over to states who would then be encouraged to give these land rights, free of charge, to oil, gas, and coal companies. He would take a resource in the public trust, one of America’s great treasures, and hand it over to what amounts to a group of corporate looters. The ghost of Teddy Roosevelt must be turning over in his grave as Romney offers up this sacrifice to his corporate masters. For it would result in public lands being transformed from something like this:

Into something like this:

 

Romney’s second big giveaway is to cut taxes for the highly profitable oil companies again. I say again because it was the same thing Bush did when he was elected back in 2000. And it is also ironic to see a massive influx of Bush energy advisers finding places of prominence on Romney’s energy team.

This year, oil companies already received more than 2.3 billion dollars in subsidies and tax assistance. This public support after having recorded over $137 billion dollars in profits. But Romney seems to think that greed is its own virtue and has decided to give another 2.4 billion away in additional tax breaks. This 5 billion dollars in tax-payer support each year would come on top of record profits from the highest oil prices ever and the great American land giveaway described above.

But Romney’s plan goes still further. Romney would cut regulations that keep coal companies from dumping massive volumes of mercury into the air and water. Coal companies have often complained that the public health protection measure is too expensive. But what Romney and his coal backers don’t reveal is that the added pollution kills more than 30,000 people each year. For Romney and big coal, profits are far more important than lives. So the protections for Americans must go.

In general, all these policies draw support from a vast and ongoing denial over the damage caused to the United States by an intensifying climate crisis. Just this year alone, over $100 billion in damages will likely be inflicted on the US economy by a number of climate-related disasters. Romney’s push to double down on big oil and big coal will only worsen the damage that is still to come.

Romney’s plan is first a dire insult to American interests in the form of a giveaway to a destructive industry. Romney’s plan is second a harm that results in added toxins spewed into the atmosphere and an ever-decreasing likelihood of dealing with the ongoing climate crisis.

But the crowning black jewel to the whole dark and devastating Romney energy policy is this: attack the wind and solar industry.

Romney plans to bring down all competitors to oil and coal through direct policy measures. He is gunning to devastate the wind and solar industry by removing the production tax credit even as he pushes to further subsidize the heavily polluting oil and coal industries. His plan would gut US innovation and progress in wind and solar energy. It would cede leadership in a 2 trillion dollar alternative energy market to China and Germany. And it would result in the loss of tens of thousands of US jobs. Worse, it would remove the prospect for creating hundreds of thousands more jobs in the future and shackle us to an energy source that is bound to abandon us during our hour of greatest need.

Republicans and Romney often deride industries that require subsidy support. However, the oil and coal industry still receive subsidies after more than 150 years of operations. The level of subsidies they receive is far higher than those of the burgeoning alternative energy industry. Typically, for a new industry to effectively get off the ground it needs a higher level of support than a traditional, established industry. And considering that the oil industry has become so profitable through its effective cornering, total dominance and monopolization of all transportation markets, giving it any subsidy at all simply amounts to paying tribute to a tyrant. It is unnecessary, wasteful, and encourages the worst behavior.

Yet this is exactly what Romney and Ryan are pushing to double down on. And they would lay the slain carcass of the alternative energy industry at the feet of their fossil fuel masters.

Given the intensifying climate crisis. Given the depleting and increasingly expensive fossil fuels. Given the need for America to create sustainable jobs in a sustainable industry. And given the fact that if we fail to lead in the alternative energy revolution, others will in our stead, it is absolutely necessary that the American public reject Romney. Reject Ryan. Reject robbing from the American people for the profit of special interests and reject policies that will ruin our future. And, last of all, reject the vicious and anti-American agenda of the oil and coal company barons who stand behind them.

Natural Gas: Better Than Coal, But No Solution to Global Warming

The good news? CO2 emissions for the US have fallen to levels not seen since 1992.

This is amazing progress and is due to a number of positive steps taken by the US since 2007 when CO2 emissions peaked at 6 billion metric tons per year. Since that time the US has enacted efficiency policies and provided incentives to increase electricity production from wind and solar energy sources. We have added 500,000 barrels per day of biofuels production and we have cut coal use by 20%.

Wind and solar energy installations have multiplied to such an extent that states like Colorado, at times, have seen as much as 50% of electricity production coming from alternative energy sources.

Now for the bad news: the cuts to coal burning in the US, a major factor in lessening US CO2 emissions, have come in large part due to an increase in supply of low-cost natural gas.

It is worth noting that natural gas is far less toxic an energy source than coal. Coal pumps masses of poisons, including mercury into the air and water supply. It also emits two times the level of CO2 when compared to natural gas. Sadly, the result for US coal has been that, though plants have idled here, much of our coal is being shipped overseas to places like China who burn it instead. So what would seem to be a net decrease in carbon emissions is merely a shifting of carbon emissions to another place on the globe.

Natural gas is also still a significant carbon emitter. And the process by which the gas is extracted, increasingly, relies on a fracking technology that pumps extra methane into the atmosphere. Methane is twenty times more potent than CO2 as a global warming source and many studies have shown that volumes coming from fracked wells are significant.

But perhaps most importantly, increasing use of natural gas risks continuing fossil fuel dependence at a time when it is absolutely necessary to begin reducing carbon-based energy use overall.

The International Energy Agency, the world’s premier energy watch-dog, noted:

“Natural gas is not the answer to this problem. Gas-fired plants may emit only half as much carbon dioxide per kilowatt-hour generated than coal-fired plants, but by 2025 the amount emitted will be higher than the average for the entire electric system.”

Natural gas dumped on the US market may have the net effect of crowding out renewable energy sources at the exact moment when it is necessary to rapidly build them. Gas has been labeled the ‘crack cocaine’ of the utility sector. Prices tend to be volatile. During boom times, like now, utilities tend to gobble up all the low cost gas they can find, going on a binge of overbuilding gas generators and neglecting other, more stable, energy sources. Over time, demand increases, drawing up the boom’s slack. Eventually, demand pushes up against supply and prices skyrocket. The result is that utilities are left with a glut of natural gas infrastructure and idle plants as they scramble for other energy sources. And the most readily available substitute for gas happens to be coal, completing the crash phase of a vicious and destructive energy cycle.

This crack-cocaine, high-low effect can have some pretty terrible economic consequences for utilities, especially if they fail to predict the booms and busts.

Some have said that the shale gas boom is different. But, already, new gas supply has leveled off and prices have stabilized. With demand for natural gas still rising, it seems likely that costs will rise over the next few years. The potential exception is that enough renewable energy infrastructure could displace the need for natural gas, continuing to push prices down.

And this brings us to a serious problem. If we are to adequately address the issue of climate change we must have mechanisms in place that prevent low-cost fossil fuels from flooding the market and increasing CO2 emissions. To this point, despite the fact that US CO2 emissions have fallen, world CO2 emissions keep rising every year. A shift to natural gas in the US will only serve to increase the overall world production of CO2. So policy measures that increase the cost of carbon, to reflect its damage to the climate, will need to be put in place lest we rapidly find ourselves in a situation we can’t back out of.

Boom and bust natural gas, for this very reason, is a false path to reducing CO2 long-term. It results in net increases in emissions and continued dependence on the very fossil fuels we need to ween ourselves from.  And it threatens to undermine the more stable and economically viable long-term energy sources like wind and solar.

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Seven Dark Truths About High Gas Prices

Over the past few weeks, politicians have made much hay over high gas prices. Republicans blamed Obama. Obama fired back. And much misinformation flew back and forth. The sad truth is that there are a number of hard realities keeping prices high and the only viable solution is weaning ourselves off of oil over time.

Truth #1 Conventional Crude Oil Peaked in 2004                                                                              

In 2004, production of the stuff we all think of as oil peaked. It topped off at around 70 million barrels per day. And since that time, no matter how much prices increased, conventional crude oil would not significantly exceed 70 million barrels per day. It is a sad fact that the world has struggled to increase crude oil production and failed. $100 oil is proof enough of that.

Truth #2 Increases in Production Have Come From Fuels That Aren’t Oil                                                   

There are many fuels called oil that really aren’t. They include: condensate, natural gas liquids, tar sands oil, oil shale, and bio-fuels. Condensate is a product of gases turned to liquids during the refining process. Natural gas liquids are condensed from wet gasses. Tar sands and oil shales are low energy fuels that have been enriched through a process called hydrogenation. And bio-fuels are liquid fuels interchangeable with oil but produced from crops.

The total production of all these fuels is now more than 18 million barrels per day. All are less energy dense than traditional oil. Most of them cost more to produce. In short, these fuels are simply less economical. This lack of economy makes them more costly, harder to access, and less useful. For example, tar sands cost between 50-60 dollars per barrel to produce. And this increased cost pushes up the overall cost of oil by setting a bottom on prices equal to the cost of the most expensive fuel produced. The reason these new fuels put a bottom on prices is that this marginal oil won’t be produced for very long if prices fall below the cost of production.

Of these 18 million barrels of non-oil, 2.5 million barrels come from tar sands and 2 million barrels come from bio-fuels that require oil to remain in a price range of 50 dollars per barrel or more. These high costs, in turn, push up the price of oil.

Truth #3 Depletion is Increasing the Cost of Crude Production       

Returning to conventional crude, it’s important to note that the cost of production is rising for it as well. The reason is that most of the new crude comes from special wells that require enhanced oil extraction techniques. One example of enhanced extraction is oil fracking. Fracking breaks rock in order to liberate both oil and gas. And the fracturing techniques require more expensive machinery, chemicals and water which increases the cost of production. With oil fracturing, the price of oil needs to also stay above about 50 dollars per barrel. New oil derived from fracking represents about 1.5 million barrels per day. So this flow of oil is also putting a bottom on prices.

Truth #4 World Oil Exports are Declining 

As oil exporting countries make economic gains by selling their costly product, economic activity along with oil consumption in-country increases. This results in net losses in the amount of oil available for export. Among top oil exporters Venezuela, Saudi Arabia, Egypt, Mexico, and Norway, exports are going down. Other countries who were once exporters, including the UK and Indonesia, have now turned into net oil importers. Reduced flows of exports means less oil is sloshing around in a world full of buyers. So demand, long-term, is increasing while supply, long-term, is going down.

Truth #5 Speculators Matter                                                                                                             

Recent estimates from economists indicate that speculators have pushed up oil prices enough to increase the cost of gasoline by 50 cents per gallon. Speculators trade in paper barrels of oil and manipulate floating stocks to increase costs and profit at the margin. That said, unless oil markets were tight, speculators wouldn’t have this ‘opportunity.’ Oil scarcity and fear keep the speculators preying on high prices by making the cost of oil and, therefore, gas even higher.

Truth #6 Current High Prices are Supported By Fear                                                                                      

Recent fears that Iran will mine the Persian Gulf and use military force in an attempt to close the Straights of Hormuz have helped to keep oil prices above $105 per barrel in the US. Currently, fear is probably pushing the price of oil up by about ten or fifteen dollars per barrel. Likely, without such a geopolitical constraint on oil, prices would fall to the low 90s as 100+ dollar per barrel oil has caused demand destruction in various markets worldwide over the past year.

Truth #7: 80 million New Cars are Produced Each Year                                                                                    

There are more than one billion automobiles in this world. And each year one is produced for every person born. These vehicles require energy to operate and the vast majority of them require oil. This reality places a very high demand on depleting oil. The only way to curtail this demand and still rely on oil is to, at times of scarcity and high price, reduce the amount of driving. The result in this reduction is a curtailment in economic activity resulting in slower growth or recession. So you have tightening, more difficult to access supply pushing directly against rapidly increasing demand in the form of a broad swath of new vehicles and machines produced each year.

Prognosis: Without Alternatives, Increased Efficiency Oil Prices Will Keep Rising Long Term                        

The combined realities of a plateau in conventional crude oil, the increased cost of producing new oil, rapid depletion in existing oil fields, and the contentious geopolitics of oil mean that over the long-term oil prices will continue to rise or remain high. The only way out of this depletion price trap is to drastically increase efficiency and to shift vehicle, machine, and industrial systems to fuels that are not depleting, preferably alternative fuels and renewable energy. These changes require long-term efforts and large investments. The alternative pushed by political forces aligned with the oil industry — relying only on increased drilling — is a short-term fix that will only more rapidly deplete the remaining, meager and difficult to access stores of oil.

 

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