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Fracking and the (supposed) death of peak oil

The shale “revolution” started with U.S. natural gas. It turned out that the same techniques behind the shale gas boom—drilling long horizontal wells, and fracking along their length—also worked for getting oil out of the ground.[1]

This new source of oil—which some call shale oil, and others call tight oil—has surged, with production rising even faster than shale gas had. To understand the significance of this surge, I think it’s crucial to take a long-term view. So just as my my earlier post, “the shale gas ‘revolution’ stacks up,” showed the various sources of natural gas the U.S. has drawn on since 1900, this week’s post shows the various sources of U.S. oil.

(For those outside the U.S., I’ll take a more international view in future posts. But since large-scale production of shale gas and tight oil has so far been confined almost exclusively to the U.S., I’m focusing on this nation first.)

Here’s a look at the various sources of oil over more than a century. The bulk of the oil has come from onshore, in the lower 48 states (that is, excluding Alaska). The nation has added to that with offshore oil from various zones—the Gulf of Mexico, in both shallow water and deep water, and along other parts of the coast, particularly California. A big chunk of oil came from Alaska, but that production has been dwindling for 30 years. Then, in the late 2000s, came tight oil.

US oil by source 1900-2013 2014-08-12.png

(I’ll give the same caveat as in my previous post on natural gas: The data shown isn’t meant to be a replacement for official data. It’s just to show a close approximation of where the United States’ crude oil has come from over its entire history. I’ll put the underlying data up on Github page ASAP. The data sources are described in my wiki.)

We can also separate out the various sources of oil to show each on its own:

US oil by source 1900-2013 2014-08-12 line.png

The new-comer, tight oil, has surpassed production from the whole rest of the lower 48 states onshore. Tight oil production is higher now than either offshore or Alaska were at their peaks. Zooming in, we can see more clearly how tight oil compares:

US oil by source 1900-2013 2014-08-12 line zoom.png

So we can see how, as production from the old workhorse—conventional wells onshore—approached a peak, other sources rose to help keep production rising, for a time.

First there was offshore drilling in the shallow waters of the Gulf of Mexico, which began to reach out far from shore after World War II, but only got going in earnest in the mid-1950s. Next came offshore oil outside the Gulf of Mexico, primarily California. In the 1960s, Alaska added a bit from various moderately-sized oil fields.

But when conventional onshore oil reached its peak in 1970, the decline was so sharp that these other sources weren’t enough to keep the nation’s total production growing. Production from the whole U.S. reached a peak in 1970, and entered a sharp decline.

Almost no one in the industry or government expected this peak and decline, and the nation wasn’t prepared. (This is a major topic in my upcoming book, Oracle of Oil, about maverick geologist M. King Hubbert, who did forecast this peak and decline, and tried to warn the nation about it.)

By the time of that peak, the U.S. was already importing oil, and with the decline of production, imports suddenly skyrocketed. OPEC—the Organization of the Petroleum Exporting Countries, including Saudi Arabia, Venezuela, Iran, and Iraq—recognized they had a far more powerful position than in the past. When the Yom Kippur War (aka Ramadan War, or October War) broke out in the fall of 1973, OPEC imposed an oil embargo on the U.S. and its allies. At that point, the U.S. had been struggling with energy supplies for a few years, for various reasons, but the 1973 OPEC embargo was when the problems became really acute.

In response, to get access to the largest oil field the nation had ever discovered—the Prudhoe Bay field on the northern coast of Alaska—Nixon fast-tracked approval of a pipeline across Alaska, halting environmentalists’ legal challenges that had held up the pipeline for several years. But even with that giant field, which pushed Alaska’s oil production above 2 million barrels a day, it wasn’t enough for U.S. oil production to match its earlier peak.

By the late 1980s, U.S. oil production was undeniably in sharp decline again. But it didn’t seem to be a huge problem. After a decade of high prices, oil got cheap again in the mid-1980s, and the earlier energy crises faded from memory. Those crises seemed to be purely political machinations, rather than anything to do with how much oil was available—that is, with geology.

The U.S. did start to draw on other sources, including deepwater offshore oil, with high-tech rigs that can drill in more than 1000 feet of water (and then go through many miles of rock to reach the oil). They also used fracking to get oil out of some formations that wouldn’t yield much otherwise. In the 1980s, companies ramped up use of enhanced oil recovery, heating thick oil to make it flow, and pumping CO2 into oil fields to get more out of the ground.

Then came tight oil—specifically, combining fracking with long horizontal wells, which can snake a mile or two through thin rock formations, allowing one well to drain far more rock was possible before. With soaring oil prices through the 2000s, which made it possible to actually turn a profit with this kind of expensive drilling. This created the tight oil boom.

(More to come in future posts about profits and the boom. I’ve glossed over a lot here.)

Tight oil came as a huge surprise—something neither optimists nor pessimists saw coming. Optimists have taken it as a triumph of technology and innovation, which has proved pessimists wrong. They’ve argued that it means the “death of peak oil.” This isn’t coming just from random bloggers spouting off. Citibank published a report titled “Resurging North American Oil Production and the Death of the Peak Oil Hypothesis,” and the Financial Times ran an editorial, “Looking past the death of Peak Oil.”

The United States was the poster child for peak oil, showing a clear peak and decline—one that showed little hope of turning around. With the resurgence of production due to tight oil, the dominant attitude seems to be: anything is possible, there are no limits.

However, as with shale gas, I think the nation needs to take a close look at tight oil to see how long the boom might last. In later posts, I’ll unpack this notion that “peak oil is dead,” to show what I think is seriously misguided about it.

One last thing to keep in mind. This might seem nitpicky, but it’s important for comparing the numbers above with others out there. In my graphs, I’ve left out “natural gas liquids.” Many others, though, lump natural gas liquids in with oil. Why do they do that? The short answer: It makes the numbers look more impressive.

The fact that natural gas liquids aren’t really oil is right there in their name. The natural gas liquids the U.S. is getting from fracking are overwhelmingly ethane, butane, and propane—the kind of stuff you make plastics from, or burn to heat your house or have a barbecue. They’re not the stuff you can put in your gas tank.

Yet when the FT declared “peak oil is dead,” they used numbers that included natural gas liquids, saying: “US output of liquid petroleum has regained its previous peak, reached in 1970.” Note they didn’t talk about oil, but rather liquid petroleum. Others use the same kind of switcheroo in declaring the U.S. the world’s biggest “oil” producer—and then explaining that by “oil” they didn’t really mean oil.

If the boom in crude oil production is so amazing, why juice the numbers by lumping in natural gas liquids?

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