The Easy Oil is Gone

The Wall Street Journal had a front piece article from Wafra, Kuwait about steam injection experiments being used to pump the heavy oil remnants that previously were very expensive or unobtainable.  The area has traditionally produced very easy oil to pump.  But as his report admits, the easy oil getting to be hard to find.

The article sights U.S. Geology numbers that state that there are 2,962 billion barrels of heavy oil estimated to be in the ground.  They are honest enough to admit that only 14% (434 billion) of that is available using current techniques.

This must be matched against the 88 million (also noted at Wikipedia) barrels a day (32 billion annual) used worldwide.  So when the article notes that there is 78 billion (3.5 times the U.S. reserves)  of recoverable heavy oil in the Middle East as a positive point, you very  quickly understand why finding a way to extract the un-extractable is so important; It is a matter of having a potential 92 year worldwide supply (2,962/32.1) versus 14 years (434/32.1) at current usage rates.

The Wafra project the article focuses on is the largest in the region.  They note that the technology has been used in the past, but in areas where it was easier to come by fresh water (Kern River Oil Field in Bakersfield, California)

Facing Up to End of 'Easy Oil'

By Ben Casselman, Wall Street Journal, 24 May 2011.

First we start with the magical thinking:

"When people talk about how we're 'running out of oil,' they're not counting the heavy oil," says Amy Myers Jaffe, who runs the Energy Forum at Rice University's Baker Institute for Public Policy in Houston. "There's a huge amount of resource there…It's just a question of developing the technology."

Then the more realistic assessments:

The Wafra project, however, is far more of a challenge than traditional steam projects. As in most of the Middle East, the oil at Wafra is trapped in a thick layer of limestone that also contains minerals that can build up inside pipes and corrode equipment...

With no fresh-water sources in the Arabian desert, Chevron has been forced to use salt water found in the same underground reservoirs as the oil. That water is full of contaminants that must be removed before it can be boiled and injected into the ground.

Finding the energy to boil the water will be even tougher. Chevron could use oil instead of natural gas—literally burning oil to produce oil—but that would burn profits, too. So the company likely will be forced to import natural gas from overseas, an expensive process that involves chilling it to turn it into a liquid, then shipping it thousands of miles.

Some experts are shaking their heads.

"They're in trouble," says Robert Toronyi, a retired Chevron engineer who now serves as chief operating officer for Quantum Reservoir Impact, a Houston-based consulting firm. He says the project is so challenging that it will be hard for Chevron to turn much of a profit.

The other difficulty is a political one.  When the oil was easy to get at the host countries kicked out the major oil companies.  This forced them to develop techniques to get at harder to extract oil.  Now they have the expertise that the host countries don’t have.  But the host countries can easily play the major companies off of each other and drive a hard bargain.

In addition, as the populist revolts in the Middle East have shown, there are political risks.

We can also add pricing risk to the equation.  Because these projects are at the speculative and experimental end of the technology, they face the same sort of pricing risk that the various alternative sources of energy face.  If the price of crude oil osculates above and below their cost of production, these risky projects will find themselves operating at loss every time there is drop in pricing.  Not all of the “trillion” barrels of oil will be extractible at the same cost.  Cheaper sources of this heavy oil may make it difficult to justify starting the more ambitious projects at a rate that will lead to a smooth supply of oil. 

So if they want to get that “trillion barrels”, or at least the 80% extraction rate claimed for Bakersfield California, an awful lot is going to have to go well.