I was absolutely incredulous when I first heard the specifics of Mitt Romney’s (R – 1955) energy policy. In a nut shell, he pledges “North American” energy independence in just 8 years. How? Entirely via supply-side reforms of the fossil fuels industry. Note there is not a single mention of managing the demand side, even by way of something as simple and relatively unintrusive as improved CAFE standards. But with all of these shale oil and tar sands resources, surely we can drill our way to oil prosperity, right? I’m not so sure. (And I’m even going to ignore the point that stopping imports from countries not named Mexico or Canada will not decouple us from global market prices. Canada is a net exporter, and gas is comparable in price to the US.) Let us first establish some background. This chart is busy, but summarizes the state of energy consumption quite well. As you can see, more than 1/3rd of all energy used in the US comes from petroleum, and virtually all of that goes into transportation. You can also see that coal and natural gas provide the most of the rest of our energy. These things are not likely to change in the short run; there is a lot of infrastructure in place. But you can also see how much energy gets “rejected”. This energy is essentially wasted, often as heat, and not put to productive use. So it is clear that inefficiencies are a big problem. What many people may not know is that the United States, despite peaking in domestic oil production in 1970, is still the #3 producer of oil in the world. In fact, we are not far behind Saudi Arabia and Russia. Unfortunately, we are the #1 consumer in the worldwith more than  twice the next closest country (China). About half of our oil comes from imports. (Note that these numbers are a composite of crude oil and natural gas liquids.)

Now, let’s consider that if nothing else changed, a 1% population growth (roughly what the US growth rate is) would mean that US energy demands would double in just 70 years. China’s much slower population growth rate – about 0.5% – is offset by their rapid industrialization. India is the worst of both worlds. So energy demand should continue to rise exponentially. Since Romney’s plan is about North America (assuming Canada and Mexico “buy in”), we can assume that the energy demand for the continent should rise from about 23 million barrels per day (Mbbl/d) to roughly 25 Mbbl/d. Romney’s plan calls for a total production level of 28 Mbbl/d. Currently, total North American production is 16.6 Mbbl/d. That is a growth in production of 70%. That is a remarkable figure, especially since US conventional crude oil production peaked in 1970… at roughly 9.6 Mbbl/d. Now, nearly half of our current oil production is already from non-conventional sources (largely natural gas liquids). The gap here is not going to be bridged with cheap, easy to extract crude. No, it’s going to be met (if at all) by hydrocarbons gained by fracking, and processing of tar sands. Two questions naturally arise. First – can we do it? And second – will it reduce gas prices, as Romney implies? Interestingly enough, these two questions are inextricably linked. The lower the price of gas (which in the long run tracks crude oil), the less likely we can actually meet these production goals. Why? Because this oil is vastly more expensive to extract, and ironically enough, the more expensive oil is, the more expensive oil like tar sands are to extract and refine because it takes energy to extract oil. But the expense of extracting oil from fracking and tar sands operations is so high that it isn’t economically feasible at production volumes at less than $100/bbl.

You can see the interaction of these issues when you look at the history of oil production in graphical form. Let’s start with a baseline we should all be familiar with: real gas prices. Unfortunately, the introduction of unleaded gasoline doesn’t permit an apples-to-apples comparison that includes the oil shocks of the 1970s, but you can clearly see that high gas prices were a real issue in the early 80s, when we were importing just a small percentage of our total consumption. After about 15 years of stable prices, gasoline started to climb rapidly around the turn of the century, before crashing during the 2008 recession, and then immediately climbing again. This tracks very very closely with long-term oil price trends; oil has increased about 600% in real dollars between 1998 and today.

Next, let’s look at the number of wells being drilled.

A pattern that, again, roughly tracks oil prices can be seen. One should note that oil production had been falling during the 1980s, despite all of these exploratory and developmental wells. Oil discovery had peaked in the 1930s, but people were looking furiously. And then OPEC decided to peg production at a level to ensure stable prices. Again, you can see the trend turn upwards around 1998-2000, and then crash during the 2008 recession, and then return to it’s previous rate of growth. What about average well depth?

You can see a long-term trend towards drilling deeper. Why? The easy to extract oil is gone. We have to drill deeper to get at oil. Now we can start combining a few factors. Let us look at footage, which is a product of depth and number of wells.

Hmm. Just like we were in the 80s, we’re drilling a LOT. A lot of total footage, but spread over fewer wells. So, what does that mean for the cost of drilling?

Holy smokes. (Note – the last three graphs don’t have information past 2008 yet. No blaming this on Obama.) Some of this can probably be attributed to regulatory effects, but it is important to note that oil spills make the news, and oil companies actually do quite a bit of voluntary policing on this front to avoid the bad press (especially compared to mining companies, for example). It would seem to be a reasonable conclusion that it is getting more expensive because a) we have run out of cheap oil, and b) it takes more energy to extract and produce the oil we are producing, which is a vicious feedback loop.

OK, so I think we’ve answered the question about the cost. Barring economic collapse, gas prices aren’t dipping below $2/gallon again. But what about capacity? Mexico appears to be past it’s peak production. They are not likely a factor, in my opinion. That leaves untapped domestic oil, including ANWR, liquid condensates, shale oil (officially “tight oil”, oil contained in shale formations), and tar sands.

ANWR is estimated at 7.7B barrels of recoverable oil (which, interestingly, was not economically feasible to recover in 1998). At current consumption rates, that is a little over 1 year of oil. Not going to be a significant factor in doubling our domestic production.

Liquid condensates – the liquid hydrocarbons that are associated with things such as shale gas – have seen an uptick recently and shale gas exploitation has increased, but it seems unlikely that this source will completely revolutionize domestic oil production.

Tight oil – commonly called “shale oil” – is oil locked in shale formations, much like shale gas, and is extracted in a method similar to the fracking for natural gas. Current estimates are that production will ramp up to a maximum of 1.33 million barrels by 2029. Only about 15% of our current production levels. Tight oil is not to be confused with “oil shale”. Oil shale is kerogen, an oil precursor, which much be heavily (and expensively) processed to produce oil. Current estimates are that 2 trillion barrels of kerogen exist in the US – more than all of conventional oil that exists in the the entire world – but only a small fraction of that is hypothetically recoverable. It is incredibly expensive to process, and it is hypothesized that in-situ processing might burn one barrel of oil to produce 2 barrels of kerogen. Total global production is just 17,000 barrels per day. “Oil shale” is not going to make an impact in 8 years, if ever.

So our hopes rest on tar sands. 70% of the world’s bitumenous sand exists in Canada, with a total of 176.8 billion recoverable barrels. There are another 32B barrels in Utah. At Romney’s projected 2020 production rate, the sands would be completely consumed in 17 years. However, the Canadian government believes that they can only push production to 3 Mbbl/d by 2020 – only about 11% of the goal set by Romney. Additionally, the environmental costs are enormous, with a greater carbon emission due to processing, and enormous water use. Additionally, you only get about 5 barrels of usable oil out of the process for one barrel of energy input. In comparison, you get about 35 barrels of conventional oil, or an equivalent 80 barrels of coal energy (100 for hydro) of energy return for energy invested.

Bottom line, none of the resources available to us will allow us to meet 100% of North America’s energy demands only by manipulating the supply side of the equation. There is no technological replacement for oil on the horizon as a liquid fuel for automobiles and other transportation. This goal is flatly unobtainable. And the fact that we have to look at such expensive (economically and energy input) sources of energy to attempt to just meet our demand is a big warning sign that trouble is over the horizon if we don’t change our consumption patterns.

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