Interesting Fact

Before he became president of Russia, Dmitry Medvedev was chairman of Gazprom.

Canadian Oil Sands

The NY Times reports on the problems and promise of Canadian oil sands, providing another perspective on the energy dilemmas we face.

As I pointed out in an earlier post, the United States gets more of its foreign oil from Canada than any other country.




According to the United States Energy Information Administration, more than half of Canada's production comes from oil sands. (See this post for more.) The EIA also states that Canada has 179 billion barrels of proven reserves (second only to Saudi Arabia), which makes me wonder where the Times gets its figure of 1.7 trillion barrels.* Whatever the correct number is, the point is clear: Canadian oil is extremely important to the United States.

The first problem with this is environmental.

In a recent study, the RAND Corporation estimated that oil from the oil sands generates about 10 to 30 percent more greenhouse gases than conventional crude.

[snip]

Spent water used in oil sands projects is placed in lake-size tailings ponds, one of which killed about 500 migrating birds in April. Seepage from the ponds is polluting rivers in northern Canada, some scientists argue. In December, Environmental Defense, an environmental lobby group based in Toronto, estimated that about four billion liters of contaminated water leaks from the ponds each year. (The Alberta government and the oil industry dispute that finding.)

Strip mining of the oil sands, the most common method of extraction, has destroyed large swaths of boreal forest, an important habitat for migratory birds and other wildlife. In December, a study published by the Natural Resources Defense Council and two other groups found that six million to 166 million birds could be lost over the next 30 to 50 years because of that disruption.

The second problem is the expense involved in extracting oil from the sands.

With oil prices around $49 a barrel, profitability is fast eroding at oil sands projects and may already be vanishing at some operations. Producers have widely differing cost structures and varying definitions of profitability. But Andrew J. Leach, a professor of environmental economics at the University of Alberta in Edmonton, estimates that long-established plants can operate with prices as low as $30 a barrel. But he said newer operations need $60 to $70 a barrel for acceptable returns, and no one will proceed with proposed projects until prices return to the $80 to $90 range.

Thus, in order for the United States to continue to receive large portions of oil from its northern neighbor, we must accept higher oil prices and greater environmental destruction. Folks, this is not sustainable.

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*To add to the confusion, consider that this graph from the Financial Times, apparently based on data from BP, does not even include Canada in its list of top 10 countries of proven reserves - not even beating number 10 Nigeria's 36 billion barrels.

Interactive World Oil Map

A great map at the Financial Times that shows the major world players in the oil market, including flows of the stuff.

Is Natural Gas Peaking in Europe?

The subject of "peaking" gets tiresome, but I want to track these types of analyses for future reference. The following graph is not my own, but is from The Oil Drum.

Oil Found Versus Oil Consumed

I ran across the data that serve as the basis for the graph below in Kevin Phillips' latest book, Bad Money [Penguin, 2008, pp 16-17]. Phillips' own source for the data was an October 2006 interview of Charles Maxwell, an oil analyst, by Barron's. In addition to the graph, I found this interesting quote:

Q: Where are oil prices headed?

A: We are now getting a reaction to the higher oil prices. It is translating into slower economic growth and, of course, it is allied with a rise in interest rates. Don't think that it is just that rising oil prices equal lower economic growth. It is a question of rising oil prices and less liquidity and higher rates that's a triple threat. The bottom could be in the high 40s, though that wouldn't be sustainable. On a yearly average, we will stay in the 60s, but we'll spend a lot of time in the 50s. Then they'll start up again in 2008-2009 and go up for some time. When we get to 130 or 150 there will be another pullback.

Energy Return On Investment

Energy Return On Investment (EROI) is an important concept theoretically, but I haven't run across a lot of solid data that show the EROIs for various fossil fuels or how they have changed over time. I created the graph below based on data quoted in this post on the web site of The Oil Drum. If and when I come upon other data, I'll post them for review and comparison.

EROI expresses the amount of energy that is received for a unit of energy invested - the amount of "bang for the buck," so to speak. Obviously, the higher this ratio, the better. One of the unique characteristics of oil as a fuel is that this ratio has historically been quite high. It has apparently been declining, reflective of the fact that the energy costs of extracting the oil have been increasing. (This makes intuitive sense, since one would expect that the easy-to-get oil would be pumped before the harder-to-get oil and that over time, the harder-to-get stuff would make up a greater proportion of the remaining reserves.)

Clearly, if the ratio were to drop below 1, it would make no sense to get the oil, no matter how much of it remained.

U.S. Oil Production

While working as a scientist at Shell Oil in 1956, M. King Hubbert predicted that oil production in the United States would reach a peak in 1970 and decline thereafter. The following graph shows that he was exactly right:*





*Hubbert did not take into account Alaska, which was not a source of production in 1956. As the line showing total production indicates, Alaskan oil was able to arrest the decline for a while, although not enough to permit the surpassing of the 1970 peak.


Hubbert later applied his methods to global oil production, predicting it would peak between 1995 and 2000. He was wrong. But was he wrong because his theory was wrong or was he wrong simply in the timing? The debate over "peak oil" rages, but the flatness of global production in recent years given overall economic growth makes one sit up and take notice. Here's a chart I posted earlier:

Info On Canadian Oil Production

In a previous post, we saw that the U.S. imports more oil from Canada than any other country, including Saudi Arabia. I thought it was worth doing some more investigation into Canadian oil production. The following information comes from the Energy Information Administration (EIA) of the United States government.

• Canada had 179 billion barrels of proven oil reserves as of January 2008, second only to Saudi Arabia.
• Canada sends over 99 percent of its oil exports to the U.S.
• "In 2007, oil sands production represented approximately half of Canada’s total crude oil production."
• "Despite the excitement surrounding the development of Canada’s oil sands reserves, there are still several difficulties that could impede the future development of the industry. Analysts predict that the production of synthetic crude from oil sands is only economically viable with relatively high crude oil prices."
• EIA estimates that Canadian oil sands operators will produce 3.6 million barrels per day by 2030.

Some quick math to put some of the numbers into perspective:

• World oil production is currently around 80 million barrels per day. With 179 billion barrels of reserves, Canada theoretically could supply the world for a little over 6 years.
• At 3.6 million barrels per day, Canada's oil sands will amount to less than 5% of world oil production in 2030 (assuming world production in 2030 will be greater than or equal to current production - a controversial assumption).
  

Where Our Oil Comes From

Here's another graph I've created from data from the Statistical Abstract of the United States, showing America's sources of imported crude oil.





Some notable observations:

• The nation that supplies us with the most oil is Canada.
• Mexico's contribution dropped significantly in 2007. We can expect this to continue in the future, since its Cantarell oil field (the 3rd largest in the world) peaked in 2004 and is experiencing sharp drops in output.
• Saudi Arabia's contribution has been flat in recent years, as has Nigeria's.
• The "Rest of OPEC" includes Algeria, Angola, Iraq, Kuwait, and Libya. Only Algeria has shown significant growth since 2005.
• The "Rest of non-OPEC" includes Brazil, Colombia, Ecuador, Russia, and the U.K. Only Brazil has had an increasing contribution. The U.K.'s provision of 37 million barrels in 2007 was 46% of what it was in 2005 and 25% of what it was in 2002.
  

Peak Oil Watch

I created these graphs myself based on data published, respectively, by the Energy Information Administration and the BP Statistical Review.







Note that oil prices began their steep rise in 2003 and crossed the $40 per barrel threshold in May, 2004, early in their eventual climb to the frightening levels of the past summer. If we look at what was going on in oil production, we see that production increased noticeably in 2003 and 2004 and then was effectively flat from 2005 through 2007, a period of robust world economic growth. Why?