Casaubon's Book

A few readers have asked me to comment on Goldman Sachs’ prediction that the US will be the world’s largest Oil producer in 2017. I am delighted to do so. Several possible comments come to mind.

1. Apparently Crystal Meth has become the trendy drug at Goldman.

2. How did the Yes Men get this published under Goldman’s Name?

3. Goldman is apparently even less optimistic about Saudi oil production than I am. They think the depletion curve is going to be a straight line downwards.

4. Oh, wait, they are talking about “oil” not oil! That “oil” stuff is almost infinite – you can magically turn anything into “oil” without any infrastructure or energy costs at all – rocks, corn, algae, tar sands, hyperbole… We is gonna be the Saudi Arabia of “oil!”

(And may I just ask yet again why it is that politicians speak of being the Saudi Arabia of anything as a good thing?)

Art Berman has an analysis at the The Oil Drum that is a perhaps a little less snide than mine, while amounting to much the same thing:

NGL and LRG are not crude oil. These result from processing impurities and various non-methane hydrocarbons and fluids to produce what is known as ‘pipeline quality’ dry natural gas. These liquids and liquefied gases include ethane, propane, butane, pentane, and certain condensates that do not naturally separate from crude oil. They contain approximately 60-70% of the heating content of oil so a barrel of NGL/LRG is not comparable to a barrel of oil. In fact, ethane, the largest component of NGL, is not even a fuel and is used primarily to make plastic.

U.S. crude oil production growth will come principally from the Bakken Shale in North Dakota and Montana, and from the resource plays of the Permian basin in West Texas and New Mexico. Bakken-Three Forks production has reached about 400,000 bopd and some believe it could eventually exceed 1 Mbopd. Most of the renewed activity in the Permian basin is from shale and low permeability limestone reservoirs. Permian production has increased from a low of 841,000 bopd in 2004 by 100,000 bopd in 2010.

Early Eagle Ford production estimates in South Texas are as high as 750,000 bopd of liquids that include both condensate and NGL (Bernstein Research, August 24, 2011). Condensate, like NGL, is not crude oil although it can be used as a fuel. While there is great enthusiasm and hope for the Eagle Ford Shale, it is a very new play and there is insufficient production history in the liquid portion of the play to confidently estimate reserves. It seems highly speculative to extrapolate from current rates of about 14,000 to 750,000 bopd by 2015.

In the Comments thread to the same post, Jeffrey Brown makes the observation that all this optimism comes without a real comprehension of demand side issues:

On the natural gas side, a good deal of the blogosphere is talking about the US becoming a natural gas exporter. The most recent annual EIA data show that the US consumed 9% more natural gas than we produced in 2009, while we consumed 12% more than we produced in 2010. While we had a small increase in production, consumption rebounded, causing net natural gas imports to increase year over year.

Global annual C+C production has been between 73 and 74 mbpd since 2005, except for 2009. Global annual total petroleum liquids production has been between 81 and 82 mbpd since 2005, except for 2009. In both cases, this is in marked contrast to the rapid increases in production that we saw from 2002 to 2005.

We have seen a measurable decline in Global Net Exports (GNE), with 21 of the top 33 net oil exporters showing lower net exports in 2010, versus 2005. Furthermore, a simple model, and numerous case histories, show that net export decline rates tend to accelerate with time.

The data show that the developing countries, especially China & India, are generally outbidding the developed countries for access to GNE. Our work suggests that the US is well on it way to “freedom” from our reliance on foreign sources of oil, just not in the way that most people hoped.

All of our problems are over, man! Let’s just get out and party!

Sharon

Comments

  1. #1 e4
    September 15, 2011

    We are becoming the Saudi Arabia of dumb.

  2. #2 Collin
    September 15, 2011

    What’s the point of this article? You refer to “”oil”” as if it’s a myth. It’s called bioasphalt. Are you implying that bioasphalt is a hoax? If not, it’s a possible energy source. How many energy sources do you actually know about? And can you actually describe their pros and cons, instead of making a joke out of it?

  3. #3 Neil B.
    September 15, 2011

    Collin, the basic point is: those other hydrocarbons are not easy to get out of the ground. They take lots of money/energy/water etc. to extract, meaning their net value is much lower, they will cost a lot, etc. That’s still “something” but the higher net cost detracts from our standard of living, and the CO2 problem continues. Look up “EROEI” (energy return on energy investment) and study the pieces at TOD to appreciate this more.

  4. #4 Karen
    September 15, 2011

    And there is fracking, much fracking, in our future. But we can always desalinate seawater and use that for drinking…

  5. #5 Vince Whirlwind
    September 15, 2011

    Neil, AND, having cost so much more to extract, you’re left with a product that isn’t oil, but a low-quality mixture of hydrocarbon gases much of which is poorly-suited for use as a fuel.

    And they mock wind-power….

  6. #6 Brad K.
    September 16, 2011

    Sharon,

    And may I just ask yet again why it is that politicians speak of being the Saudi Arabia of anything as a good thing?

    OK, just off the top of my head, and not having been a politician since I won the homeroom president slot at business school, here goes.

    See, the King of Saudi Arabia doesn’t face elections, he doesn’t worry about whether the friends and family around him get involved in any financial dealings, and for the most part he gets his own way. Oh, and there is a lot of cash moving around all the time, so that lots of folks at the big table get to grab a handful now and then.

    I don’t think the politicians allow for the occasional beheadings or coup attempts. And since the kids go into the family business, the King of Saudi Arabia can’t really kick the kids out of the house after high school.

    Mostly, though, I think it is the cash flowing and maybe the odd harem fantasy that grabs their wanderlust.

    @ Collin,

    About the bio-asphalt, or swamp bogs (source of so very much of Earth’s methane), I wonder how much longer it will be until someone decides, “Hey! We can dig up all these highways, cook out the oil, and just leave the gravel there to drive on!”

    Pardon me while I imagine a heavy semi, mired to the axles in freshly cooked sand, with a wind turbine blade on the trailer and two pilot cars sitting there watching the drama.

    Luck!

  7. #7 b cole
    September 16, 2011

    Algae: The New Oil

    Algae is renewable, does not affect the food channel and consumes CO2. Algae farms are scaling up throughout the US on non-arable land and in Texas. No infrastructure issues.

    All Big Oil has invested billions into the algae industry. Heard Exxon is building an algae facility in Baytown, Texas.

  8. #8 i
    September 16, 2011

    It’s not hard to see how they came to this conclusion.

    1) The naive view of oil is only about quantity. GS Analysts may still be at that stage. More sophisticated and useful measurements like the EROEI/price ratio, or oil price feedback’s effect on marginal oil costs over time may not have factored in.

    2) There is a lot of spurious and innumerate information regarding oil supply and production in general. NOCs and large private oil companies keep stock prices high and financing flowing by exaggerating supply numbers and making “optimistic” assumptions about future production capacity. A GS analyst is unlikely to have factored this in, perhaps not even for blatantly obvious prevarication presented as “information” by Saudi Arabia.

    3) The human factor. Frankly, nobody at Goldman Sachs who tells the truth about this is going to get their bonus. The announcement is more likely some sort of investment play. As with any information announced by Goldman Sachs, any factual accuracy is likely to be coincidental, not intentional.

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