Sunday, December 1, 2019

What's wrong with the oil industry? Too many claims of abundance start sounding suspicious


Above: the Financial Times of Nov 29th, 2019. Has the US really become energy independent?


Peak oil theorists have always been the favorite punching ball of mainstream oil pundits but, recently, the attacks against the peak oil idea have started becoming so loud and widespread that I am starting to think that there has to be something wrong with the oil world nowadays. As an especially bad example, I may cite a recent article on Forbes by Michael Lynch. I understand that some people have a bone to pick and they want to pick it clean, but this is a little too much -- there are limits to how nasty one can be, even in a heated discussion. 

Yet, some claims of great oil abundance seem to be based not just on the pleasure of denigrating peak oil theorists but on data said to be real. Just as an example, see a recent article on the Financial Times where we can read that,
The US has cemented its status as a net exporter in world oil markets, a sharp reversal from past years that could affect its ties to foreign allies. 
You may wonder the logic of using the term "cemented," that carries the meaning of consolidating something already existing. Indeed, claims of the US having reached "energy independence" in terms of crude oil had become common after that the US production had exceeded imports -- that meant nothing, of course, it was pure dry-holing. At that time, the US had, and still has, a deficit of nearly 3 million barrels of oil in terms of import/export balance, as you can see in the figure below. (image from SeekingAlpha)

The EIA data for crude oil confirm that in November of this year the US had a DEFICIT of 2.7 million barrels per day in the import/export balance. So, how can the FT claim that the US is a net exporter, then? Simple: under the category of "oil" they sum crude oil and oil products. The latter include refinery products such as kerosene, diesel fuel, lubricants, etc. And, indeed, recently the sum of the exports of these two categories has touched and slightly exceeded the curve of the crude oil imports. 

Does that mean that the US is now "energy independent" in the sense that it exports more oil than it imports? Not at all. That would be true ONLY if the exported products were wholly made with US oil -- which obviously cannot be the case. The US production, nowadays, comes in large part from shale oil, which is light oil. But refineries prefer to use heavy oil, which is imported from Canada and other regions outside the US. The refined products made from this oil can be counted as "oil exports" but it is not oil that was produced in the US. If what counts is the US energy independence, then it is obvious that it is just a trick to make the US look like it is producing more than it does. 

It is true that the US oil production keeps increasing, so far, but for how long can it continue growing? Indeed, there seems to be a suspicious excess of glee in these claims of oil abundance. Could it be an attempt to cover some big problems? Hard to say, but one thing is impressive: 2019 should the first year in a decade -- since the great recession of 2009 -- when the world oil production declined (data by Ron Patterson).




The story of peak oil has been a war of opinions and we know that wars are won by those who win the last battle. Mr. Lynch is surely convinced that his opinions on peak oil have been vindicated, but it may be too early for him to take a victory lap. 

Are we looking at the other side of the growth curve





1 comment:

  1. The last decades' growth in US oil production is mostly limited to light, fracked oil (with a low eroei). "Conventional Oil" production with a higher (but still declining) eroei has been declining since 2005 -2008 or so. Fracked oil has largely been produced by (speculative) investment: fracked oil was brought forth by loans to producers who promised high production volumes. This production has not been profitable, but financiers have only lately been demanding profits over production.
    https://oilprice.com/Energy/Energy-General/Meet-The-Biggest-Losers-Of-The-US-Shale-Bust.html
    Not only was it not financially profitable, but it could not physically bring forth the economic activity that energy in conventional oil supports.
    Fracked oil must be produced with very high numbers of drill rigs located close together. Wells production decline begins within 3-5 years. "Sweet spots" (best locations) are favored. Environmental costs have been ignored and cleanup liability bonds do not begin to cover costs and cleanup costs for bankrupt producer wells are shifted to taxpayers. Because eroei is so low and deferred liabilities are so high, the downstream benefits of this oil to society are absent, unlike "conventional oil", whose social benefits by far exceeded to cost paid for the oil at production: conventional oil's the latent benefits flowed to society at large and produced our current techno-culture over the last century and a half.
    I think it is reasonable to say that the bulk of the fracked oil increase is a good example of early, post-peak oil production:
    - oil brought forth at a net cost (not profit);
    - oil with low low eroei
    - oil representing not energy production, but debt production.
    Fracking is losing financial and economic venture which is supported parasitically on the post peak oil still flowing. I think this is the reason behind our current economic decline. Oil is priced to low for producers
    See: https://ourfiniteworld.com/2019/08/22/debunking-lower-oil-supply-will-raise-prices/
    Florida Boy

    ReplyDelete

Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014). His most recent book is "The Seneca Effect" (Springer 2017)