Mar 11, 2021

THE FUTURE OF OIL AND GAS, AND THE SPECULATIONS ABOUT THEIR DEMISE

The renowned Venezuelan oilman, in an attempt to dismantle the current trend that oil has run out of time, presents us with a compilation of evidence, which shows that on the contrary now is when the “juice of the earth” remains in force.

 (Compilation Work by Luis E. Giusti L)

“In order for us to know what the final oil reserves will be, we would need to know what the end of knowledge will be, and no one can boast of knowing. We would also have to accurately predict the future of science and technology, which is another impossibility.” Maury Adelman

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(I) PRIMARY ENERGY

Total worldwide primary energy is ~ 285 MMBbls of oil equivalent, out of which 34% comes from oil, 26% comes from Natural Gas and 22% comes from Coal. It means that 82% of primary energy comes from fossil fuels. The rest is 18%, out of which 5% is nuclear energy, 2.2% is Hydro-electricity and 10% comes from renewables (8% from biomass, mostly the cutting down of trees). In summary, 82% of the primary energy consumption comes from fossil fuels. The conclusion is that fossil fuels will continue to be the dominant force for many years to come.

Along those lines, a few years ago the “World Petroleum Congress” summarized the subject as the “Energy Trilemma” i.e “The world requires an amount of energy that is “ABUNDANT, TRUSTWORTHY AND SUSTAINABLE IN TIME”, including the necessary provision for the 1,300 million people without access to electricity.

(II) THE KYOTO PROTOCOL

When George W. Bush on January 20, 2001 took over the Presidency of the USA, he refused to sign the Kyoto protocol which targeted a significant reduction of CO2 and Methane (CH4). President Bush explained his motive, by announcing that the USA could not possibly comply with the target allotted to his country. In doing that he paid a high political prize, because he became the “exculpatory lamb”. The truth was that none of the other signatories could comply either, with the exception of Japan, because it had been in recession for 10 years, so they simply went silently along with the “waves”. To that add the fact that “Cap and Trade” died before birth in the USA Congress, and that the Emissions market in Europe disappeared when the prices of carbon collapsed.

Should the conclusion be to disqualify any initiative of control emissions? Surely not, but it is necessary to strike a balanced approach.

The Majority of renewables are niches, some successful, others require large subsidies and others have suffered failures, like for some time was the case of Wind in the U.K.

(III) KING HUBBERT AND HIS PEAK

In 1956, geologist and Shell Oil researcher Marion King Hubbert delivered a speech that shaped world energy debates for many years. Addressing the API Institute, Hubbert dropped a bombshell on his audience: the U.S. oil production would peak by 1970 and decline steadily thereafter. World production would follow the same fate, reaching its peak soon after the turn of the Millennium. Hubbert defended his forecasts against opponents from both the oil industry and government. He was proved largely correct during the crises of the 1970s and hailed as a “prophet” and an “oracle”. However, although he was right in the USA peak in 1970, he was very wrong concerning the World peak.

But during Hubbert’s times his peak forecast was in vogue with many scholars and scientists discussing about “the end of the oil era”, “the party is over” and “we are nearing an economic collapse of the world as we know it”.

Inspired by the Hubbert’s peak, a crazy radical fellow called Richard Duncan came up with “The Olduvai Theory” (The name was taken from a giant pit in Tanzania, where the stratification column exposes millions of years of sediments). He used a resonant and bombastic title to announce his crazy forecast: he warned that soon a Malthusian catastrophe was on the making, that would provoke a fall of the world population to 2,000 million (Today it is 7,600), and that mankind would return to villages where agriculture and cattle raising would provide means for those living.

(IV) RICHARD NEHRING

Nehring was a geologist and engineer, who applied the Hubbert model to two of the largest basins in the USA, the San Joaquin Valley and the Permian Basin. He began working in the history-match of both, and the more he worked in the forecast, the more the numbers fell short of the reality of the growing oil production in both basins.

How could Hubbert be so wrong?

As it were the cases of Malthus and The Club of Rome, Hubbert could not anticipate the strength and dynamism of the technological evolution and the Human Ingenuity. Among the most relevant new technologies: High resolution seismic (Bright Spots), a new generation of high precision and resolution of well logs, and new technologies of deep drilling. A few more new technologies included “logging while drilling” and seabed well heads and completions.

It was only a matter of time for an accepted conclusion that the “successful” prediction of Hubbert for the USA was more likely a combination of circumstances.

(V) PROFESSOR MAURY ADELMAN (Massachusetts Institute of Technology)

My teacher and dear friend, Maury Adelman, who passed away a few years ago, was the founder of a group called “The Cornucopians” (named after the Cornucopian horn of abundance), together with his friends, scientists Julian Simon, Thomas Di Gregory and Professor Vaclav Smil of the University of Manitoba.

Following is a description of what, in my opinion, was the deepest summary reflection of Adelman and the most powerful quote of his genius:

“In order for us to know what the final reserves of oil will be, we would need to know what the end of knowledge will be, and nobody can presume to know that. We would also have to predict with precision the future of science and technology, which is another impossibility”.

(VI) GEORGE MITCHELL (Making history)

Excerpts from my article “SHIFTING POWER AMONG DIVERSE ACTORS IN OIL AND GAS (First Published in 2014) by “The Emirates Center for Strategic Studies and Research” in the book “Unconventional Fossil Fuels – The Next Hydrocarbon Revolution”

Very relevant nowadays, considering the hundreds of somber speculations without facts about the future of oil and gas. Some excerpts from “The Quest” from Daniel Yergin.

No doubt the Coronavirus has killed thousands of people all over the world, and it demands a global “attack” to eradicate it, as is the case. But in parallel there is a wide hysteria about the future of oil and gas as a source of energy, which is based on wrong premises, and I have to think that it is a case of ignorance.

George Mitchell, a Houston-Based oil and gas producer, could see the problem coming. His company was going to run short of natural gas, which would put it in a very difficult position, for it was contracted to deliver a substantial amount of natural gas from Texas to feed a pipeline serving Chicago. The reserves on which the contract depended were going down, and it was not clear where he could find more gas to replace those depleting reserves. But he did have a hunch, piqued by a geology report he had read. That was in the early 1980s. Three decades later, Mitchell’s relentless commitment to do something about the problem would transform the North American natural gas market and shake expectations for the global gas market.

The report in question pointed to a possible solution. For a very long time it had been recognized that natural gas was to be found not only in productive reservoirs but also trapped in hard concrete-like shale rock. This shale rock served as the source rock, the “kitchen”, where the gas was created, and also the cap that sat on top of reservoirs that prevented the gas (and oil) from leaking away. Gas could certainly be extracted from shale rock, as it was proven since 1821, but the problem was the economics. It was inordinately and thus very expensive, and not anywhere near commercially viable. Mitchell’s “laboratory” was a large region called the Barnett Shale, around Dallas and Fort Worth, Texas, which sprawled under ranches, suburbs and even Dallas-Fort Worth International Airport. Despite Mitchell’s efforts, the Barnett Shale proved continuously unforgiving. Mitchell insisted that his engineers keep plugging away in the face of ongoing disappointment and their own skepticism.

Despite taking advantage of tax credits under something called Section 29, producing commercial-scale shale gas (another form of unconventional gas) was proving extremely costly. In addition to Mitchell, a few other companies were also tackling the problem, but they became discouraged and eventually dropped out. In 1997 the only major company working on shale gas development efforts in the Barnett region shut down its office. Only Mitchell Energy and a few other smallest independents were left. The introduction of 3D seismic much improved the understanding of the subsurface. Still, Mitchell Energy had not yet cracked the Barnett’s code, and a range of experienced, educated people wanted to bail out of the Barnett. Mitchell Energy’s Board of Directors was becoming increasingly skeptical. After all, when almost two decades of efforts were added up, it was clear that the company had lost a good deal of money on the Barnett Shale.

By the end of 1998, the company finally achieved its breakthrough: It successfully adapted a technique known as LSF (light sand fracking) to break up the shale rock. It was a trial-and-error approach that Mitchell used, what ultimately made the difference.

Mitchell’s work was a long process of trial and error, at the end of which he made a deal with Larry Nichols, the owner of Devon Energy (Oklahoma). Nichols company was specialized in horizontal drilling. In 2002 Nichols bought Mitchell Energy from for US$ 3,500 millions. This triggered the shale revolution in the USA.

The shale gas wave then extended massively to oil fields, perhaps the best examples being North Dakota (Bakken), Texas (Permian), Eagle Ford (Texas), Niobrara (NE Colorado, SE Wyoming).

 IMMENSE TRANSCENDENCY

Perhaps very few people have realized that the implication of Mitchell’s success in fracturing the Source Rock in Texas, is that wherever there is a source rock, no matter where in the world it is, there is a reservoir rock.   

(VII) WHAT IS SHALE OIL?

In the millions of years from the magma that began forming the Globe of our world, along fire, erosion, deposition and cooling, starting upwards with the eras: Jurasic through the Triasic, the deepwater Cretaceous, the Tertiary (65 million years), the Pleistocene (2 million years and first human beings) and the younger Holocene, where we humans live.

The shale is originally clay, which is malleable and thus subject to compaction through pressure and temperature. As the millennial deposition of the clay happened, it generated a liquid called “Kerogen”, which is a mixture of organic chemicals that generates hydrocarbons when its temperature and pressure increase.

Within the “window” of temperature between 70 and 160 degrees Celsius, Kerogen releases oil that frequently has the capacity to migrate out of the shale, while within the window between 160 and 200 degrees Celsius, it releases gas which not frequently has the capacity to migrate out of the shale (because in that stage that shale is highly compacted) and thus the gas remains trapped in the shale).

(VIII) FRACKING

Fracking has been discussed for several years in many countries of the world, including labeling it as a “new technology” which non-professional people declare as an environmental threat, blaming it for pollution of shallow fresh meteoric water, and thus thousands of people are against fracking without any knowledge of the technique.

For the information of the readers, Hydraulic Fracking was introduced in the USA in 1937 (So much for a new technology) and since then more than one million frack jobs have been performed in USA. Nowadays, every year some 45,000 wells are drilled in the USA, of which 80% have been fracked.

When a well has been completed and cased, it is mandatory to run a CBL (Cement Bond Log), in order to make sure that the cement has filled properly and fully packed between the open hole and against the casing. In any case in which the CBL is not fully packed, the drilling fluid and/or the drilling mud can be dragged upwards and pollute the fresh water sands. But that can only happen if and when the completion of the well is sloppy. This clarification is very important to reject the opinion that Fracking pollutes the fresh water sandstones above.

(IX) OPEC AND GEOPOLITICS

OPEC is not what it used to be. It no longer has the power it once wielded to manipulate the market. The organization’s “excess capacity” has dropped from a demonstrable surplus of over 15 million barrels per day a decade ago, to relatively much less in almost all countries other than Saudi Arabia, which presumably has some 2 million barrels per day of excess supply capacity. This is labeled “behind the valve” i.e. the oil they can turn on and off at will.

Nevertheless, the unofficial alliance between Russia and Saudi Arabia has played a very important role in dealing with OPEC’s members and stabilizing the internal accords to protect the desired price level.

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