– The Shale Oil Boom: Is America Trading One Crisis for Another?

(MintPress) – For nearly 60 years, the United States has had an unnatural addiction to petroleum. A component in nearly every manufactured good or industrial process in America — from energy production to fertilizers, plastics, cosmetics, medicine, industrial lubricants and even food preservatives — the loss of petroleum would assuredly seize the American economic engine — perhaps, permanently. Over the past half-century, America’s industry and driving society has pushed the nation from the world’s leading producer to the world’s leading consumer.

In 2000, the United States consumed 19.6 million barrels per day, or more than 25 percent of the world’s productions. In the same year, only half, or 12 percent of the world’s production, came from American sources. This has created a dependency on imports from major oil producing nations, such as Saudi Arabia, Russia and Iraq. Oil embargoes in 1973 and 1979 severely crippled the United States and drove global oil prices to record levels. In response to this, the nation started its search for domestic means to satisfy its oil needs.

One of the unconventional methods created to discover additional oil reserves in the United States is shale oil extraction. Oil shale is a sedimentary rock that is rich in organic material, known as kerogen. Kerogen can be converted into shale oil through thermal or chemical processing. Shale oil can be used as a replacement to crude oil for petroleum processing, but the process is costlier than crude oil extraction and riskier to the environment.

It is estimated that the global deposit of shale oil is between 2.8 to 3.3 trillion barrels of recoverable oil.

A second unconventional source is the Athabasca, Cold Lake and Peace River Oil Sands Pits in Alberta and Saskatchewan, Canada. Oil sand is loose sand or sandstone saturated with bitumen — a dense and viscous form of petroleum incorrectly referred to as tar. In these three pits, there is approximately 176.8 billion barrels of oil. Bitumen extraction, as with shale oil, is expensive to refine and has only became economically feasible recently with an advancement in technology.

Refinement of bitumen produces as much as 12 percent more greenhouse gases than conventional crude oil refinement. In addition, bitumen’s viscosity, which at room temperature resembles cold molasses, make spills an environmental nightmare and nearly impossible to clean.

Many experts suspect that the world is approaching peak oil, or the point where the maximum rate of oil extraction has been achieved. From that point forward, oil production will decrease at a predictable rate. If oil demand increases after that point, there would be a global petroleum

shortage, which would completely derail the global economy. It is hoped and assumed that the world would adapt to the level of oil production with conversions to energy-efficient technologies, reliance on alternate fuels and increased investment in green energy technologies.

However, powerful petroleum lobbies including American Petroleum Institute and heavy political spending from Americans for Prosperity — the Koch Brothers-backed super PAC, which gave record amounts this election cycle — have convinced politicians to not act proactively toward the pending energy crisis. With crude oil production plateauing and peak oil approaching, many feared that the United States would face a permanent oil shortage by 2020.

The use of the shale oil and oil sand reserves may turn this impending disaster around.

As reported by Argus Media:

“US crude production will climb to 6.7mn b/d by 2020, up by 20pc from 5.6mn b/d in 2011, US agency the EIA says. On top of this, US NGL output of 2.2mn b/d will rise to 2.8mn b/d, the agency says, as shale production includes a lot of NGLs. And EIA forecasts are regarded as conservative. The rise in output is largely the result of rapidly increasing production from shale formations such as the Eagle Ford and Bakken. And Canadian oil sands producers are expected to supply 3mn b/d by 2020, twice the level seen in 2010, industry trade group the Canadian Association of Petroleum Producers says. Taken together, these developments prompted BP in its latest long-term energy outlook to suggest that North America will enjoy a small energy surplus by 2030.

“But the impact of increasing shale oil production is already being felt, long before the US reaches self-sufficiency. Existing pipeline infrastructure is unable to handle the increased crude supply from onshore sources in Canada and the shale formations, but projects to build additional pipelines are moving at a slow and arduous pace. As a result, the US has seen a resurgence in oil transport by rail, barge and truck. Bakken shale oil production hit 470,000 b/ d in December from North Dakota alone, up by more than 70pc compared with a year earlier. The exact capacity of crude-loading rail facilities in the Bakken is hard to quantify, but estimates are in a 305,000-415,000 b/d range, rising to 1mn-1.3mn b/d in the next two years. In the Eagle Ford, existing natural gas pipeline capacity can be converted to move crude. But railcars, trucks and barges are being used to move crude to destinations further away that may be more profitable than local sales, which are subject to large discounts as crude backs up.”

This impending boom in the American oil supply is projected to make America the world’s largest petroleum producer by 2020, making the nation completely petroleum-independent. This will greatly impact Western Africa and the Middle East, whose economies are dependent on petroleum exports. The stress of the loss of the world’s largest petroleum consumer may agitate already delicate political situations.

Chris Faulkner, chief executive officer of Breitling Oil and Gas (which was recognized by World Finance as the Best Independent Oil and Gas Company in North America in 2011), spoke to MintPress about the state of America’s energy situation and how it will affect the Middle East:

“I think OPEC will finally acknowledge the very clear and present danger of North American shale oil and gas production, and it scares them. Since the 1970s, Saudi Arabia has stood as the oil producing nation with the greatest influence on global petroleum markets. With the largest proven reserves, highest exports and most spare capacity of any country in the world, Saudi Arabia’s sway over oil supply and prices has been unchallenged.

“The shale oil boom has changed the game and the energy landscape forever. Keep in mind we currently get 20 percent of our imported oil from Saudi Arabia and within five years that number will be zero.

“Now, I would not expect them to take this repositioning lying down. I foresee the Middle East producers making investments in U.S. companies focused on shale gas, and I know first-hand that Saudi Arabia is also looking closely at exploring for shale oil and gas reserves offshore near its own borders.

“Additionally, this is going to be a wake-up call for the GCC countries to rein in their domestic consumption of crude which is cutting into their crude exports. Governments can take this opportunity to realize they won’t be ‘king of the hill’ forever and they need to reduce subsidies and switch from oil to other energy sources to generate electricity. They need to get to market pricing for their gasoline and electricity and the U.S. becoming the number one producer of oil in the world may just be the catalyst they need. The U.S. surpassing the Middle East will fast-track domestic reform and help the GCC countries transform into more nimble oil and gas exporters and dish them a huge reality check.”

In addition, the global oil reserves would still be depleted, even if America met its own petroleum needs. Eventually, peak oil will arrive, and the world may have to face a reality without enough oil to go around. It can be argued that the shale oil boom will give politicians an excuse to not take the energy crisis seriously, exposing the nation inadvertently to a potential national security threat. Without a true effort to wean the nation off of petroleum, a third oil crisis may be but a matter of time.

The world without oil

Should the world ever run out of petroleum, humanity would be utterly and permanently changed by the loss. Transportation would take the most obvious hit. Airplanes, supply ships, train networks and truck carriers will all come to a stop. Massive starvation will set in, as most Americans live more than 50 miles away from their food sources. Without the workforce able to go to work, critical resources such as water and electricity management, police, fire and hospital services will all suffer.

Without a ready lubricant, industrial machinery will seize and cease to operate properly. Without petroleum, an essential component in plastic, fertilizer and vital chemicals production, will be unavailable, compromising the nation’s national output.

States that rely on petroleum for energy production, such as Florida, would have rolling blackouts. As much as a third of the general population could be compromised or die off in the first decade in a world without oil.

The voting down of environmental protections or green energy incentives has traded short- terms gains for the long-term vitality of the nation. Heavy lobbying and political contributions from petroleum-producing and lumber companies, such as Koch Industries (which, in 2011, contributed $8.36 million to lobbying efforts), have convinced Washington to delay gasoline- efficiency standards, environmental protections and industrial regulations.

Should peak oil arrive, it will end the United States’ posture as a world superpower if enough alternate energy has not been secured in time. Without a valid “plan B,” all elements of

America’s security network — from communication lines to the jets in the sky — would be compromised in such a severe way that national security, in such a situation, would only come from the notion that everyone else in the world is sharing the same pains.

In 2010, 8 percent of all energy consumed in the United States came from renewable energy sources, with biomass — or the burning of quick-growing grasses and crops — constituting 53 percent of this. Of the naturally generated energy sources, hydroelectricity leads the pack. The daunting lack of development in geothermal, solar and wind power represents an indictment against those in power to offer an effective and diverse suite of energy solutions, and an obvious threat to national security, as such a large part of the national security framework lies in the hand of foreign nations.

In 1973, this threat was realized, and members of the Organization of Arab Petroleum Exporting Country (OAPEC) proclaimed an oil embargo against the United States. This was done, in part, due to the United States’ involvement in resupplying Israel during the Yom Kippur War, in which Israel was badly outnumbered and most analysts believed Israel would have been forced to negotiate with the Palestinians and their Arab allies had America not interfered. The seven- month embargo ended with the negotiated agreement between Israel, Syria and Egypt that Israel will withdraw from the Sinai and the Golan Heights if Arab forces withdraw from Israeli territory.

This action broke NATO’s unity toward its position on Israel. Much of Western Europe became pro-Arab or neutral, which caused a strife that has yet to be resolved in relation to the United States. This action also caused the nation to seriously re-examine its energy policy. Record prices for oil and massive gasoline shortages — during the last week of February 1974, 20 percent of all American gas stations had no gas at all — forced changes, such as the establishment of the National Strategic Petroleum Reserves and the creation of the Department of Energy.

However, true corrective actions, such as improved gasoline mileage for passenger cars, were lobbied against and blocked. Only in light of recent environmental lobbying has gasoline efficiency been questioned.

A lack of a corrective plan threatens to drag the United States into a similar energy crisis. However, many in the oil industry hold on to the assertion that the world will not run out of oil and that the United States will continue to meet its energy requirements. In further discussion with MintPress, Faulkner spoke about the impending American energy boom:

MintPress (MPN): Do you believe that the shale oil boom will derail the green energy movement?

Chris Faulkner (CF): Unless we can dump some of this new supply on world energy markets through export, I would expect a repeat of the 1980s — new oil supply will trigger an oil price collapse that helped roll back the renewable energy programs that were started during the oil crises of the 1970s.

Currently, the U.S. gets less than 1 percent of its electricity supply from burning oil, so technologies like wind and solar power simply have no bearing on oil consumption in their current state. That is less true outside the U.S., but the trends there are also moving in this direction. So other than for biofuels, a steep drop in oil prices for any reason would have little impact on the rationale for renewables, except perhaps psychologically.

The two factors on which renewable energy investors and manufacturers should stay focused are the economy and the price of natural gas, against which renewables actually do compete and have generally been losing the battle, recently. I perceive natural gas being the real killer to the renewables revolution. [The Center for Sustainable Systems reports energy consumption from petroleum in this country to be 37 percent of the total energy consumed.]

MPN: Will America and the world be prepared for peak oil or when the oil supply runs out?

CF: I don’t subscribe to the theory that we will run out of oil. I think we will continue to increase our energy efficiencies, continue to find additional reserves and continue to invent technologies that increase our primary, secondary and tertiary recovery percentages. Peak oil is a theory, and I don’t think it has any credibility. Here is why: Currently, the United States has roughly 1,400 billion barrels of technically recoverable oil and 20 billion of these we consider proven oil reserves. The difference in the two figures is because of “access and drilling availability.”

A tremendous amount of these reserves are under federal lands: the Alaskan National Wildlife Refuge, the Naval Petroleum Reserve-Alaska, federal waters off the Atlantic and Pacific coasts, at least 45 percent of the Gulf of Mexico, the Chukchi and Beaufort Seas and oil shale on federal lands in Colorado, Utah and Wyoming. Even if the current administration keeps these lands locked up — they cannot prevent access forever.

Next let’s take a look at history. In 1944, U.S. proven oil reserves were 20 billion barrels — about the same as they are today. Yet, between 1945 and 2010, the United States produced 167 billion barrels of oil. In other words, the United States produced over 8 times more oil than the amount of proven oil reserves it had in 1944.

How can that be? The answer is that proven oil reserves are not stagnant because people keep looking for oil. Proven oil reserves are a moving target. And due to independent- and entrepreneurial-based oil and gas companies who harvest ingenuity and are willing to take risk — more reserves are found and proven each year.

Weird science

In the past, the United States has bowed to corporate interests without consideration of the environment or resources’ availability. This mismanagement of the nation’s energy reserves created an emergency in which a seemingly “miracle” cure promises to correct 40 years of low automobile gasoline efficiency, little investment in alternative fuels and a general lack of interest from the federal government toward addressing the problems peak oil brings.

However, these reserves are finite, and experts have projected that they will be exhausted in as few as 20 years. The argument that we will find more oil is logically weak; it’s akin to telling a starving child we will find him more food — without a definitive plan, it is just an empty promise.

This is not to discount the notion that this oil boom is coming at an extreme cost to the environment. With climate change becoming a regular part of everyday reality, it is reckless to exchange one crisis for another. While bitumen refinement is attractive, true energy independence will come from investment in green energy, improvements in energy efficiency and retrofitting the nation’s energy grid away from consumable fuel use.

Ultimately, we return to the common point: Short-sightedness and biased outside influences led to critical mistakes in the handling of the nation’s energy policy, which we must now live with.

In 2011, President Obama addressed Georgetown University and said this:

“We cannot keep going from shock to trance on the issue of energy security, rushing to propose action when gas prices rise, then hitting the snooze button when they fall again. The United States of America cannot afford to bet our long-term prosperity and security on a resource that will eventually run out. Not anymore. Not when the cost to our economy, our country, and our planet is so high. Not when your generation needs us to get this right.

“It is time to do what we can to secure our energy future.”

People no longer have the luxury of choosing between a clean environment and a sound energy policy. For the safety of the nation and the security of her people, we have to have both.

Original Article:

December 15, 2012•