Friday, May 13, 2011

A Glimpse of Our Oil Future

The Department of Energy’s Energy Information Agency issued Annual Energy Outlook 2011. It is available here. The Outlook invites us to contemplate what things might look like in 2035 from a 2009 perspective, thus to look 27 years ahead. The report appears to emphasize natural gas—because we’re apparently doing well in that regard—even if the brightness of that future seems to be lit mostly by shale gas. I have a summary on shale on this blog, and can only agree with the EIA which also, rightly, emphasizes that there are many, many unknowns in that field.

I decided to concentrate on the petroleum liquids instead. Here in a nutshell is the EIA’s projection for that sector:

In other words, in 2009 we consumed the equivalent of 6.9 billion barrels of crude. Of that we imported 52 percent. In 2035, we shall consume just shy of 8 billion barrels of crude equivalent. Our imports will have dropped to 41 percent; some fraction of our biofuels, however, will also be imported (presumably from Brazil). The new kid on the block is liquid from coal, as high as 3 percent of our future liquid fuel. Makes me wonder where the hydrogen will come from to get that hard coal to flow.

It is difficult to discover, in such reports, “big picture” perspectives that let the reader eyeball the reasonableness of such projections. I dug out some numbers to provide myself perspective. Let’s look at petroleum reserves and consumption world-wide and in the United States.

World reserves in 2009 were put at 1,239 billion barrels by BP (link) and world production, thus consumption, was 26 billion barrels the same year (link). If nothing changes—thus if no growth in consumption takes place and no new fields are discovered—we have 47 years of oil left.

U.S. reserves stand at 30 billion; U.S. consumption was nearly 7 billion barrels of crude equivalent. Using that number, we have 4-plus years of oil left. In effect we imported 52 percent of our oil, therefore only consumed, from domestic sources, 3.3 billion barrels equivalent. Using that number, we have nine years left.

But in EIA’s projection we have to go out 27 years and reduce our reliance on imports from 52 to 41 percent. So how is this going to happen? Well, buried in the report is the answer. The base case EIA uses includes a magic trick. The EIA magician holds out the shiny black top hat. Drum roll. And then the magician pulls 69.3 billion barrels of as yet un-discovered new reserves from the hat. These reserves will be discovered in off-shore locations all around the contiguous United States and in Alaska. Well! That’s a lot of oil! It is more than twice the reserves BP credits us as having (30 billion). Others are less generous. The Oil and Gas Journal and World Oil both think that our current reserves are just 21 billion barrels.

Other assumptions I find EIA making in building its base or reference case also strike me as rather optimistic. EIA assumes a $125 per barrel of crude price out in 2035. If I was a betting man and expected to live well beyond 99—I’ll be that age in 2035—I’d put hard cash against that number. The case also rests on other cheerful developments like a very abstemious American public, dramatically improving automotive efficiency, and an economy that will let us buy the new technology as soon as it its been delivered, presumably by Caesarean section, out of the labs.

The glasses seem tinted a shade too rosy. The curves they just keep going up. EIA is tweaking trends going downward up, with just a few token revisions. Technology wins. Foreign competition for the precious oil is muted. But that’s the nature of huge institutional establishments, like the EIA. Keep driving straight ahead, grip the wheel hard, don’t blink—but keep the pedal to the metal.

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