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Thinking Carefully About Tight Oil

by Michael Levi
February 7, 2013


A piece in Slate by Ray Pierrehumbert arguing that tight oil abundance is a myth is making the rounds. The essay makes some fair warnings against irrational exuberance when it comes to hundred year supplies, claims of endless energy independence, and complacency on climate change as a result of abundant natural gas. But the piece does at least as much to confuse as illuminate. Fortunately, that provides a good opportunity to look at a few important misunderstandings that frequently arise in discussions about U.S. oil.

The Slate essay starts with an attack on a paper published last year by Leonardo Maugeri that had a distinctly cornucopian bent. Many, myself included, have argued that that paper was way over the top. But Pierrehumbert makes a big mistake when he claims that all of the other excitement – from the EIA, IEA, and others – have flowed from bandwagoning on the Maugeri report. Those of us who spend decent parts of our professional lives involved in this stuff know quite well that this isn’t what happened. For starters, the first prominent and enthusiastic projections weren’t from Maugeri; they were from Ed Morse at Citigroup. The EIA and IEA reports used bottom-up analyses that were independent of the Maugeri work. If people want to pick apart these studies, that’s fine, but cutting down one largely unrelated outlier won’t do the trick.

The next big problem with the Slate essay – again one that many others make too – is that it appears to assume that tight oil will need to deliver all U.S. oil production. That allows it to claim things like this: “At the high end of the estimates, predicted production from Bakken and Eagle Ford together amounts to perhaps a two-year oil supply for the United States at 2011 consumption rates…. Even if it were to prove possible to achieve production rates comparable to those of Saudi Arabia, that would only mean that we would deplete the resource faster and bring on an oil crash sooner.” On top of this, while Pierrehumbert is right that some people are ignoring the fact that current tight oil prospects will peak and then decline, he errs in presenting this as a critique of mainstream estimates, like those by the IEA and EIA, despite the fact that those projections show precisely that same decline.

The essay then launches in an oft-heard discussion about high decline rates and large capital costs. Geologists’ focus on this as an argument for why production will be low continues to baffle me. Do people think that the models used by government agencies and industry forecasters don’t incorporate this? Of course they do. They just find that, even when they include this, economic incentives still push things toward higher production, at least through the end of the decade. There is no law of nature that says it’s impossible to produce a lot of oil from a field whose wells are expensive and decline quickly.

The Slate essay also manages to bring in one of my favorite bugaboos: energy return on investment (EROI). It is taking ever more energy, Pierrehumbert points out, to produce a barrel of oil. This is supposed to herald the disastrous coming of a day when we need to put more energy in than we get out. But not all energy is the same, and it can make very good sense to put in large amounts of energy in a relatively low-value form (e.g. gas) to get a smaller amount of high-value energy (e.g. oil) out. Once again, geology and physics are important, but economics need to be factored in.

One last point: the Slate essay repeats the misleading juxtaposition of the amount oil in a massive resource (this time the Green River shale formation) with plausible emissions limits in a carbon-constrained world, in order to warn about the climate consequences of extracting the new fuels. But this suffers from the same problem that the “game over” claims for the tar sands have: it pays no attention to time scales. There is no plausible scenario in which we’ll spend the next thousand years with a totally decarbonized economy – except that we’ll burn everything in Colorado or Alberta or some other discrete carbon pool. The causal arrow runs the other way: these big pools of oil will be burned if we choose to cook ourselves; they will mostly remain in the ground if we don’t. It’s how much fossil fuels we use, not where they come from, that matters most to the planet.

Post a Comment 3 Comments

  • Posted by Joani Shaw

    I heard a re-broadcast of your talk from Jan.25,2013/It’s Your World
    program, and followed you to this cite. According to some scientists
    if we use the oil gotten from the fracking done in the Alberta, Canada fields, the carbon emitted from that use will put our planet in peril. Do you agree with those calculations? You state that it is how much fossil fuels we use, not where they come from, that matters most, but if tar sands operations even in their development are hugely destructive,and if the use of that oil is a danger, why not put our efforts into less harmful ways of getting our energy? From the videos I have seen the Alberta pools look anything but discrete. Do you agree on the need to stop the keystone pipeline? Thank you for your time,
    Sincerely, Joani Shaw

  • Posted by Jody

    ” There is no law of nature that says it’s impossible to produce a lot of oil from a field whose wells are expensive and decline quickly.”
    In other words there will be a lot of expensive oil available, and I thought more drilling and greater availability was supposed to reduce the cost of oil, oh yes that did happen with gas, and now the gas drillers are broke. As soon as those fracked gas wells run out of gas the broke gas drilling folks will be at it again, only this time the gas will be expensive,

  • Posted by Jonathan Katz

    As a rough rule of thumb (professional economic geologists may wish to comment), the quantity of a resource is proportional to the 2.5 power of the (real) price. The world has never run out of any mineral resource (whales are another matter entirely), and, aside from fluctuations, the real price of these resources has declined gradually with time (Julian Simon won his bet, but it is even more assured over the longer term).

    Exception? Possibly gold, but gold is not (mostly) a mined and consumed resource, but a speculation on the economic future based on the fact that both production and consumption are very small compared to the inventory (about 65 years of current production) available for speculation. Only about 10% of the annual production is actually consumed irrecoverably.

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