The End of Cheap Oil?
By Morris Altschuler

August 1998

Who will tell us in advance that we are running out of cheap oil and that production will decline prior to the year 2010, when a barrel of "West Texas Intermediate" oil was recently quoted at under $13 and a gallon of gasoline is now selling at some service stations at less than a dollar? In a recent issue of Scientific American, experts do.

Authors of the main article in a special report in the March issue on "the End of Cheap Oil" are two geologists, now consultants in Geneva, with more than 40 years experience each in the oil industry (Texaco/Amoco and Total). Writers of three subsidiary articles, on oil from tar sands and oil shale, on methods for discovering more oil, and on liquid fuels from natural gas, present the perspective from the oil industries they represent.

The SA article strongly disagrees with a widely accepted claim that today there are one trillion barrels in proved oil reserves which are being used up at approximately 25 billion barrels per year. The trillion barrel figure has been around for about ten years, which would seem to indicate that new reserves are being found as fast as the 25 bbl/yr consumption. But in reality, it says, discoveries in the 1990s have averaged only 7 bbl/yr, less than one third of consumption which keeps going up.

The writers point out that estimates of reserves are exaggerated by those in the industry wanting to boost the price of a company's stock and worth. OPEC members are tempted to inflate their reports even more because the higher their reserves the more they are allowed to pump annually.

The experts note that an oil well's output begins to fall back to zero when about half is gone. Using several different techniques to estimate current reserves and the amount left to be discovered, they conclude that this decline in production will begin before the year 2010. Just last June 5 TNO Road Vehicles Research Institute, a transportation group based in the Netherlands, stated that world wide oil reserves will peak around the year 2000, then drop 3 to 5% per year thereafter.

After the price of crude hit all time highs in the early 1980's explorers developed new technologies for finding and recovering oil. They scoured the globe for new fields. They found few. The discovery rate continued to decline uninterrupted. The SA figures show that in the 1990s discoveries averaged 7 billion barrels per year and last year more than three times that was consumed.

The authors say advances in geochemistry and geophysics theory have made it possible to map productive and prospective fields with impressive accuracy. As a result, large tracts can be condemned as barren. Much of the deep water realm, for example, has been shown to be absolutely nonprospective geologically.

For the recent Caspian Sea find, their models project production there will grow until 2010. They agree with the USGS World Oil Assessment program and others who say the region has roughly 50 billion barrels (i.e., two-year worth at present world consumption rates), not the hundreds of billions reported in the news media. They see little help from advanced technologies in draining the largest oil basins, which are on shore in the Middle East (2/3 of world reserves), where oil gushes from the ground without assistance.

Tar sands are always located in difficult climates and difficult settings for discovery, leave alone requiring a difficult process for turning them into a useful product. And the process produces a huge amount of waste material. The report states that environmental problems also arise. The sands and shales create a lot of air pollution. Orinoco sludge contains heavy metals and sulfurs that must be removed. The industry experts fear there would be many government restrictions to control the environmental impact.

Back in the late 1970s and early 1980s huge sums were spent by industry, and more so by the government, in unsuccessful efforts to develop these alternatives viably. Promises of low priced oil shale, tar sands and oil and gas from coals were never fulfilled. Eventually all of the proponents hoped that oil would go $70 or even $100 a barrel to justify their efforts. Some day they may get their wish.

Unfortunately the authors spend too little time on demand. They say that global consumption is rising more than 2% per year. They report use in Latin America up 30% since 1985, 40% up in Africa, and 50% in Asia. While Energy Information Administration forecasts oil demand up 60% worldwide by the year 2020, it is not reasonable to think it will be much greater. (Consider the small fact that the bicycle-to-car ration in the U.S. is 0.7 to 1 and in China, with its population of 1.2 billion people, it is 250 to 1. And there are many more countries like China whose burgeoning populations have high expectations.)

As for market share and political implications, the writers say that considering use patterns and location of reserves, the market share of Middle East oil will pass 30% within two years and by 2010 it will hit 50%. That will cause major disruptions, cost increases, and foreign policy problems.

The last article on "Liquid Fuels from Natural Gas" brings back memories of the 1970's and 1980's. Natural gas unquestionably is cleaner than oil as a fuel, and tapping into this resource will provide many more years of a fossil fuel-based economy. However the location of natural gas reserves is exactly the same as that of oil. The major source is the Middle East, with all of its associated problems.

In addition, "sending gas over long distances often turns out to be prohibitively expensive. Natural gas costs four times as much as crude oil to transport through pipelines, because it has and "Unfortunately the conversion facilities required (to produce liquefied natural gas), are large and complex and because liquefied natural gas is hard to handle, the demand for it is rather limited."

The discussion of liquid fuels from natural gas is reminiscent of the major efforts in the 1970s and 1980s on coal liquefaction and gasification. The cost will be very high and, again the location of the gas is the same as of oil. At least coal is a domestic resource.

There are always new promises. Basically the starting point is the indirect process, which includes the steam reforming process that produces CO and H2, using steam, that, and a nickel-based catalyst, followed by the Fischer Tropsch technology the Germans used in WWII and the South Africans (Sasol) used when they were under world boycott. Both countries had no oil and lots of coal and were forced into this situation because of an emergency. The heat, catalyst, and oxygen needs of the process are very costly. The article claims that with the latest technology the cost had been cut considerably.

The article also suggests a process for producing methanol from methane (natural gas), for production of gasoline or for direct fuel cell use. Lastly, it offers promises reminiscent of those of the 70's and 80's. For example, "low temperature biological processes are quite promising because they can produce specific chemicals using relatively little energy." Yet it is doubtful that promises and claims will do the job this time either.

The authors try to end the report on an upbeat message, by talking about a post oil economy of safe nuclear energy, oil conservation, and liquid fuel from natural gas. They ask for increase government research dollars in these areas. One must wonder about the prospects for any nuclear power plant construction anytime in the near future, considering fiascoes like the Shoreham Lilco plant on Long Island. Renewable energy should be heavily funded, but given the lack of industry support, that is not likely. Oil/gasoline conservation isn't selling well today, given the public's propensity for driving greater distances in large inefficient vehicles.

We need greater efforts to develop renewable energy resources (wind, solar) and transportation alternatives, such as electric vehicles, that do not rely heavily on oil/gasoline. When necessary, we should use our domestic fossil fuel resources, namely coal. And we should save the depleting world and domestic oil reserves for use as a valuable feedstock for petrochemicals, which are largely recyclable. (Morris Altschuler is a chemical engineer formerly with the Environmental Protection Agency. He now serves as an environmental consultant and is a member of the Electric Vehicle Association of Greater Washington, DC. He can be reached at 311 Lorraine DR., Rockville, MD 20852; tel 301-770-5591, e-mail [email protected].