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An Oil Gusher in the Offing, but Will It Be Enough?

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Science  30 Nov 2012:
Vol. 338, Issue 6111, pp. 1139
DOI: 10.1126/science.338.6111.1139
It's a plan, anyway.

IEA's scenario has world crude oil production (blues on bottom) nearly holding steady, a possibly iffy expectation. Increasing demand would be met by expensive unconventional oils (red and yellow), but NGLs (lavender) would be needed, too.

CREDIT: OECD/IEA

Some stunning headlines followed the International Energy Agency's (IEA's) release earlier this month of its World Energy Outlook 2012. “U.S. Oil Output to Overtake Saudi Arabia's by 2020,” blared Bloomberg, for example. That may be true, but the more significant aspect of the Outlook's projections was the prospect for world oil. Under the right conditions, the report says, the world could produce increasing amounts of oil right through 2035 and meet the world's growing demand for energy as oil.

The catch is “under the right conditions.” Everyone agrees that the oil is out there. The trick will be wresting it from the ground under difficult circumstances as fast as the world needs it. The United States would have to triple its production of so-called tight oil, requiring tens of thousands of new hydrofractured wells. Fragile Iraq would have to triple its current production. And the world would have to figure out how to run motor vehicles on a sort of petroleum gas currently of little or no use in transportation. As IEA's chief economist, Fatih Birol, says of the Iraq situation, “there are many challenges.”

The challenges are there because, according to IEA, the world will never again produce crude oil—the familiar black goo that pours from a well with little or no encouragement—as fast as it did in 2005 at the peak of crude production. If drillers frantically drain currently producing fields, develop known fields, and find new ones, they can only hope to keep crude oil production roughly level until 2035. No increase in crude is coming.

In the Outlook's featured scenario, increasing population and rising standards of living push the demand for oil from 2011's 87.4 million barrels per day to 99.7 mb/d in 2035. In this scenario, to help meet that increased demand, oil-producing countries would have to double their production of so-called unconventional oil. That's oil locked up in rock or sand so tightly it won't come out of a well on its own, like U.S. tight oil trapped in nearly impermeable rock or Canada's tarry oil stuck to sands. These unconventional oils are abundant, but tight oil requires hydraulic fracturing of the rock, and oil sands need to be steamed underground or bodily dug up and processed.

Only high oil prices make such efforts worthwhile, oil analyst Richard Nehring of Nehring Associates in Colorado Springs, Colorado, notes. With the high prices of recent years, U.S. tight oil production has soared from next to nothing to almost 1 mb/d, mainly from North Dakota. In the Outlook scenario, U.S. tight oil production continues its steep ascent toward 3.2 mb/d in 2020. “That's in the range of feasibility,” Nehring says. If that happened, it would help put the United States ahead of Saudi Arabia and prop up world oil production.

But it will take more than continued high oil prices for unconventionals to help save the day. As tight oil production rises further, “the drilling rates get interesting,” says oil analyst Richard Miller of Addlestone, U.K. Any new oil well's output peaks and then goes into decline, but tight-oil well production peaks quickly and drops precipitously, 40% to 80% during the first year of production. That means lots of new, expensive wells need to be drilled into large volumes of oil-rich rock. But estimates of the amount of accessible tight oil “are poorly known as of now,” Birol notes.

Tight oil alone won't meet rising demand, of course; more natural gas liquids (NGLs) will be needed. Actually liquid only when pressurized or chilled, NGLs are the hydrocarbons that fall between the methane of natural gas, the lightest hydrocarbon, and the larger molecules heavy enough to be included in crude oil. NGLs are mostly a byproduct of natural gas production; they end up in gasoline, plastics, and your backyard gas barbecue.

Lately, though, many energy organizations have been lumping NGLs in with crude oil and calling it “liquids” or, as IEA does, just plain oil. IEA does adjust its scenario's 50% increase in NGL production by 2035 to account for the 40% lower energy content of NGLs compared with crude oil. But that does not entirely reflect the way NGLs are used today. Fifty-four percent goes into petrochemicals, according to an analysis by Anne Keller of Wood Mackenzie in Houston, Texas. Only 17% ends up in gasoline for transportation, and only 19% is burned as fuel. If NGLs are to meet a growing demand for transportation fuel, especially diesel, their processing will have to be rejiggered somehow.

Finally, the IEA scenario calls for Iraq's oil production to triple. “Geologically, it's clearly possible,” Nehring says, “but it's everything else that's problematic,” as IEA points out in some detail. To increase its current production of 2.6 mb/d to 8.3 mb/d in 2035—more than double its previous production high—Iraq would have to consolidate its shaky political stability, invest billions to supply water to stimulate production, and “remove impediments to investment,” among other challenges. Things are already looking tough in the investment arena. Earlier this month, Exxon Mobil told Iraq that it wants to withdraw from a $50 billion oil project there, reportedly because the country's increasingly restrictive fiscal terms for the deal meant Exxon Mobil would not be making any money.

Indeed, money may be the most uncertain factor in the IEA scenario. It has the price of a barrel of oil rising to $125 in real terms by 2035. Such an increase would fund the maintenance of crude oil production, drive up production of unconventional oil, and encourage transportation's shift toward NGLs. The catch: The Organization of the Petroleum Exporting Countries would have to restrain its production as non-OPEC production surges to allow prices to rise. The scenario is silent on the chances of that.

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