In amongst the election news there’s been a lot of news on the oil and gas front that’s had my spider senses tingling….as in I sense the distinct consistency of grade A Bull$hit!
Consider the story of what was described as “the world’s largest oil field” under Gatwick in South Eastern England, with talk of “up to 100 billion barrels of oil”. This comes on the back of media reports over the last few years highlighting the scale of the UK’s shale gas and shale oil resources. Consider for example this typically Cornocopian piece from a libertarian.
A clue to the truth behind all this can be gained by actually bothering to read the report from the BGS that sparked all of this speculation. And in particular skipping to the bottom and checking out the references. You will immediately note how quite a few of them are not new, some go back many years to as early as the 1960’s. This is not really surprising because its long been known by geologists that this formation of shale existed for quite some time. What the BGS has been attempting to clarify recently is how big this hunk of rock is and what level of gas and oil is concentrated within in it, i.e. how big are the resources of gas and oil within the formation.
There is a world of a difference between saying there’s 100 billion in resources (i.e. gas/oil that is we know is located in a certain area, but may not be economic or technically possible to extract) under our feet and 100 billion in reserves (oil and gas which we know can be accessed and drilled economically).
Incidentally, anyone who wants to know more about the process of oil discovery and drilling, I’d advise taking a look at this webseries of video’s by an Oil and Gas professor (Dr Lau), who does a good overview of the topic.
A quick look at figure 2 above will help illustrate the point I’m making. As you can see only about 7% of the world’s fossil fuel resources are classified as reserves. The rest is certainly there, it exists, but the problem is that much if it isn’t necessarily in a form that’s easily extractable. It could be too deep to drill into, it could be under a mile of ocean, the rock between us and it may present problems, there could be a large underground aquifer between us and the oil (a significant problem for much of the UK’s shale resources in fact), the oil/gas might be in lots of little fields that are too far apart to be economic to drill, or it might be in waters claimed by another country. Or more often than not, a combination of factors may apply.
And a big part of the problem here is that its often far from clear, when a company starts drilling, what the situation is. Many people have this image of an oil well as being like a tank of oil under the ground. Actually a more accurate view is that of a lair of sand, soil, gravel or “source rock” trapped between two impermeable barriers. So less a tank and more a sponge….but a sponge buried under several miles of earth and rock! While the oil immediately close to our drill might well flow up naturally under pressure, or it can be pumped out, stuff further way is harder to access. We have to drill more holes…at a couple of million a pop. Or even start pumping stuff down there to force the oil out. Fracking may be called for to stimulate flow.
At some point, and we won’t necessarily know when, we’ll no longer be getting enough oil or gas out of our well to make it economically sensible to keep production going. So the well is capped. And keep in mind the industry average for oil well recovery ratios (what comes out v’s what stay’s in the ground) is about 40%, with a range of about 10-55% for conventional production. That is to say that on average 60% of the oil in a typical field is left in the ground. And recovery ratio’s tend to be poorer in new oil fields (particularly with unconventional oil and gas), largely because the drillers are still feeling they’re way around the underground elephant.
So if for example in this Gatwick field we were to identify a reservoir of oil with say 1 million barrels in place and let’s assume we can recover that for a cost of $10 million, would it be worth our while to drill? The media or the cornucopian’s types will probably say, well of course, but let’s think about that.
At current oil prices (let’s assume $60/bbl) and assuming average rates of recovery (so 400,000 bbl actually recovered), we’ll make $24 million, which doesn’t sound bad. But what if we end up only getting 10% out? Or because of unexpected complications (e.g. a load of FoE protesters occupies the rig for several months, we hit several gas pockets, we end up drilling a dry hole and need to start again, etc.) our costs jump to £30 million. Or perhaps several of these things happen, what then? Well, in this case we’re loosing our shirts is what happens, even if the oil price goes up to $120!
And this is the reason why a lot of oil finds worldwide will turn out to be minnow’s that the oil majors simply chuck back in the sea and ignore, hence the massive difference between global reserves and resources.
To draw an analogy, if we were to assume you could book all resources and treat them as reserves, then nobody by the sea, such as a ship wreck survivor, could ever die of thirst, as after all he’s surrounded by water. However if we consider the amount of trouble its going to be to separate out the water from its salt content, we realise he’s going to be struggling to extract enough to survive. And only then if he can build some sort of solar still. Listen to the cornucopian’s and they’ll have you believe he’ll have a swimming pool with a jacuzzi up and running by his first week! By contrast, someone by a small mountain pond, is in a substantially better position. While his water resource is smaller, its in an easily accessible form. So long as he doesn’t over-produce and drain the pond dry, he’s always going to have at least some water available.
Hence why talk in the UK comparing the Gatwick find to Ghawar field in Saudi Arabia is laughable. Is it being seriously suggested that the UK holds more oil than the rest of Europe (including Russia and central Asia) combined? Ghawar field, represents a proven reserve of oil that has been producing for 50 years, while only relatively small quantities of oil have been produced in Southern England. Again to give you a comparison, Ghawar’s peak production is in the order of 5 million barrels a day (out of a Saudi total close to 10 million bbl/day), oil fields in Southern England output about 20,000 bbl/day.
Similarly any suggestion that the US holds “100 years of shale gas” is simply not accurate. This analysis assumes that 100% of Shale resources could be recovered (they can’t!), with a recovery factor of 100% (shale formations tend to have recovery factors well below the 40% mention earlier). A more reasoned analysis suggests 11 to 21 years of supply. The EIA estimates that Shale Gas has increased US resources by 27% and worldwide by 32%. A lot of gas yes, but not quite the massive game changer that is often suggested.
This brings us to the final point in figure 2, production v’s reserves. Again you will notice that annually only about 1.2% of world energy reserves are produced per year, or if we focus on oil alone, about 8% comes out per year. The fact is we can’t simply extract oil or gas at any arbitrary rate of our choosing. A higher production rate often means more drilling, more pumps, more costs and again beyond a certain tipping point, its not going to be economic nor technically feasible to up production. Too high a rate of production also risks causing technical problems, which will in the long term limit the amount of oil we ultimately extract from our reservoir. So large reserves, nevermind large resources don’t automatically mean a high rate of production.
And of the world’s oil resources (conventional and unconventional) annual oil production is but 0.8% of these resources. So you understand how laughable stupid the ravings of some cornocupians, like our libertarian fantasist earlier, sound when they imagine being able to drain the UK’s shale resources away (with a recovery ratio of 100%!) in just 50 years! To draw another analogy if we we’re to send a load of cornocupians to the sides of a large lake and get them to extract water using just spoons and sponges, while I took a small pond and a foot pump, who do you think would achieve a higher rate of production?
So you may enquire given everything I’ve said why are the companies behind these finds spreading such falsehoods. Well for the very same reason why the oil and gas companies are laying off staff. With the recent drops in oil price, nobody wants to invest in finding more oil, which is really bad news if your head of a oil exploration firm. Of course the best way to attract some
suckers investors to fill the company coffers is some good oil fashioned snake oil salesmanship, which the media have been more than happy to promote free of charge. Keep in mind that one of the key promoters of this story also just happens to be a city firm who specialises in oil and gas investment.
Similarly the shale gas promoters have been selling the myth that shale is some new magically energy source developed by professor Dumbledore at Hogwarts. In truth, the first fracking of oil wells dates back to 1949. Certainly the fracking technology used today is very different, the scale is larger, the depth and pressures are different. But the basic idea that we could use it to extract the oil and gas from the shale resources we’ve long known existed is not a new idea.
Anyone who doubts me, go to your universities library some evening and go through the oil and gas journals of a few decades back (say 60’s to 80’s, whatever’s on microfilm was my rationale) and you will see the odd paper or journal pop up relating to “hydraulic fracturing”. I found several going all the way back to the 1960’s….including one crazy one which thought of using fracking to dispose of nuclear waste! (they went a bit nuts in the 60’s, all those drugs!).
Again, the oil and gas industry has been attempting to suggest otherwise, as they have a very specific agenda. Which is basically that the existing reserves of oil they hold are rapidly depleting. There reserves are also uncompetitive compared to those held by Middle East producers. And the “let’s steal the Arab’s oil” gambit appears to have failed rather dramatically. So plan B is to con the rest of us into paying over the odds for domestic oil and gas, while ignoring the urgent matter of climate change and the fact that unconventional oil and gas production often comes with a much higher rate of pollution and a higher carbon footprint.
So given these factors, yes you can go with the dodgy “cowboy” fracker, whose offering a “too good too be true” deal. Or do you go with the science, which says we need to engage in a long term strategy to get off oil. Nothing spectacular, but a long term commitment towards energy conservation, renewables and generally living within our means.