“Ethical Implications of a Declining Resource Base” – Al Browne

Last year at this time, I was handing out copies of a book review I had written. The book was by Kenneth S. Deffeyes called Hubert’s Peak: The Impending World Oil Shortage. M. King Hubbert was a geologist at Shell Oil who predicted in 1956 that U.S. oil production (in the lower 48 states) would peak in the early 1970s—and then decline forever. Though Mr. Hubbert was one of the world’s most eminent oil geologists, his views were largely rejected by the oil exploration community. But in 1970, U.S. oil production in the lower 48 states did peak and has declined ever since. Ken Deffeyes worked with Hubbert at Shell Oil and later joined the faculty at Princeton University. In Hubbert’s Peak, Professor Deffeyes claims that if the same methods used by Hubbert to predict the peak year of U.S. oil production are applied to world oil production, they predict that production will peak before the end of this decade, and then decline forever. This would happen as demand continues to rise, causing worldwide shortages and economic chaos.

Deffeyes now says that evidence is accumulating that the peak year may in fact have occurred in 2000, and that the price increases we saw earlier this year are the first of a series of price shocks of increasing severity, which will extend to the end of the petroleum era. Deffeyes says that it isn’t certain that the peak occurred in 2000, but there is nothing conceivable that can push the peak beyond 2009.

Last January, Shell Oil revised their estimates of proven reserves downward by over 20%, admitting that 3.9 billion barrels of oil which they had claimed to own wasn’t really there. At $37.00 per barrel, they had misrepresented the value of their assets by about 144 billion dollars. All of the top executives were fired, and the SEC is now investigating Shell Oil for stock fraud.

There were articles about this in the Wall Street Journal at that time, one of which explained how Shell got into this mess. [1] In their view, what basically happened was this. In the late 1990s, most major oil companies were already reaching the same conclusion as Ken Deffeyes was reaching—that most of the oil worth recovering had already been found. In general, their response was to find smaller oil companies that owned significant reserves, and buy them out. (You may have noticed that in the last ten years, several filling stations suddenly had new signs on the pumps.) This strategy does nothing to increase world oil stocks, but, if you’re an oil company, it nicely increases your stocks. This is what BP did—-it’s what Exxon did.

Shell Oil alone took a different tack. They figured that if you need more oil, you just go find it. They said, in effect, “We’re Shell Oil—we’re the biggest and the best exploration geology group in the world. As the price of oil increases, we’ll just commit more resources to exploration—and we’ll find more oil.” Shell lost that bet. They spent billions looking for oil, and found very little. The exploration department concealed their early losses from the directors and stockholders of the company by fudging the data on the size and recoverability of the oilfields they were finding. This was merely a play for time. They knew that when you claim to have found oil, sooner or later, someone is going to ask you to deliver that oil. But they assumed that their early disappointments were just a string of bad luck, and that if they just kept looking, they’d eventually strike a big find that would make all the numbers come out right.

It never happened. So after about eight years of falsifying data and throwing good money after bad, they decided to bite the bullet and admit that over 20% of their booked oil reserves did not actually exist.

Garret Smith is the portfolio manager for BP Capital Energy Equity Fund, which is a 200 million dollar hedge fund. He says, “What’s driving oil prices is the lack of prospects for new reserves….We don’t think drilling stocks will move up because we don’t think the oil is there….” [2] What this all appears to mean is that all major oil companies, even Shell, are now ready to agree with Ken Deffeyes that the oil which humanity has left is mostly the oil we already know about. It’s a finite amount, and there isn’t that much of it–at least, not much compared to the rate at which we use it. [3]
So who owns the right to burn the last of the oil? How shall it be allocated? Shall those countries fortunate enough to have oil burn it and other countries go without? If that is how it comes out, we’re going to have a problem. We are 5% of the world’s population, we consume 25% of the world’s oil, and have 3% of the world’s reserves. [4] We now import over half our oil, and according to the Dept of Energy, by 2025 we will be importing 70%. [5] Our own domestic production will continue to drop as our older wells run dry, and there are no large untapped reserves in the U.S. except the Alaskan National Wildlife Reserve. The ANWR’s potential reserves are usually estimated at between 3 and 7 billion barrels. [6] Since we now use about 7 billion barrels per year, this could supply us for about six months–or maybe a year.

Shall oil be sold on the world market and be used by the countries rich enough to buy it? This is the present arrangement, and it hold risks of its own. Imagine that you are a rural peasant in a third world oil-exporting country, and you rely on a donkey-cart for transportation. Your village has a few TV sets, and the images on those sets show America–an America choked with millions of cars–which are burning oil from your country. The oil you are standing on is your birth right, but you don’t burn it; the Americans burn it–while you use a donkey-cart. You hope that some day even the poorest in your country will have roads and automobiles too. But that will take a long time, and by then the oil will be gone because the Americans will have burned it all. If you were that peasant, how would you feel about this? Compounding the problem is the fact that most of the oil reserves are in historically unstable parts of the world, with populations who might not like us very much even if we weren’t taking their oil.

Another problem with the oil being sold to the rich countries is that we may not always be one. The United States had a 542 billion dollar trade deficit last year. That same year, over 200 billion dollars worth of U.S. assets, mostly treasury bonds, were bought by the central banks of foreign governments, with China and Japan leading the way. Foreign governments now own nearly one trillion dollars worth of our treasury bonds. Both our trade deficit and our federal budget deficit are being financed by foreign governments. These governments also hold hundreds of billions of U.S. dollars in cash and vast amounts of U.S. stock. They continue to buy U.S. dollars to prevent their own currencies from rising against the dollar, as their trading strategy depends on an overvalued dollar. We have the luxury of owing this massive debt in dollars–which we can print at leisure. No other country can amass foreign debt in its own currency. [7]But ultimately, the value of a dollar depends on what it will buy. And there are fewer and fewer things produced in America that anyone will buy. The only reason our currency hasn’t collapsed already is that it is still the reserve currency of the world, and oil is still priced in dollars. But deficits trigger inflation, and when the value of the dollar starts dropping, if any one of the countries now holding our dollars panics and sells them, our currency could collapse with inflation rates not seen since the Weimar Reich Mark inflation. And if any of these countries dump their U.S. stocks —-our stock market will crash. And I don’t even want to think about what happens if they sell their Treasury Bills. Right now, there are a dozen ways our economy can collapse overnight. This may seem odd for a country that is still militarily the most powerful on earth. But consider the Soviet Union. They had ICBMs by the thousands, and they put a man in space before we did—and what did it get them? Although their economy shows recent signs of hope, for most of the last fifteen years it has been in ruins and their people reduced to poverty. They became a third world country. Their military machine not only failed to prevent an economic collapse, but the cost of maintaining that machine may have caused it.

We will not remain the world’s richest country forever. We may not even remain a reasonably rich country forever. In fact, it’s not certain we’ll remain so for another decade.

So far I’ve talked about dividing the remaining oil among those people alive today who would like to burn it, as though no other generation had a claim on it. Obviously, other generations do have a claim on it. The oil that we started using in the nineteenth century lay there for 3 hundred million years, but now over half of it has been used, mostly in the generation just past. And most of what’s left will be used in this generation, leaving little or none for those who follow. Even now there is a clamor for drilling the ANWR, just to get a little more oil. So far the ANWR debate has been framed around whether to disturb a pristine wilderness. But that wilderness is doomed, because as precious as oil is about to become, sooner or later, that area will be drilled for oil. But instead of taking it now, would there be anything terribly wrong with leaving it in the ground for one more generation, so that after we’ve burned up every drop in the lower 48, there would at least be some left for our children?

We could say, “Let our children use alternatives. Sooner or later the oil will all be gone and they will have to anyway.” I have a better idea. Why don’t we switch to alternatives–and leave them a little oil. If you really think switching to alternative fuels is going to be that easy, what’s the problem?
There have been a number of promising developments in alternative energy recently. [8,9] (If you are interested in alternative energy, see note 8 and 9.) And some forms, like wind power, are already becoming competitive. I have always urged converting to alternative energy sources as quickly as we can, but this may not be the panacea we hope it is. Some claim that ethanol will never be a replacement for oil because we use over a gallon of oil to produce a gallon of ethanol. The Dept of Agriculture claims that we can produce 34% more energy from a gallon ethanol than it takes to produce it. [10] A corn grower I know says that one bushel of corn will make three gallons of ethanol, and at a hundred-twenty bushel per acre, that’s 360 gallons an acre. How could anyone use that much fuel to grow a crop? But this argument may be beside the point. How ever much oil we use to produce our food, it’s a lot.

Richard Manning, in his book Against the Grain, says that in developed countries, every food calorie eaten represents at least one oil calorie used to grow, transport and process that food, and for some foods, it’s more like ten calories. Even in developing countries, since the “green revolution,” crops now require massive inputs of fertilizers and chemicals made from fossil fuel. If the next generation has no oil, this will inconvenience them in many ways. But their first problem will be the lack of anything to eat. As we run out of oil, we run out of food. You can run a car on ethanol, but cars use a lot of energy. One car eats for 50 people. In a world-wide famine, would we really convert food into motor fuel? Could you drive an ethanol powered car knowing that for every day you used it, fourteen families would starve?

Of course, you can produce ethanol from sources other than corn or sugar cane. You can make ethanol from garbage or crop residue. Unfortunately, there are limits to the amount of crop residue we can divert to fuel use and still maintain the fertility of our soils. And most new technologies will be more costly and less convenient than oil, so few corporations will make the conversion to supply them to us as long as cheap oil is an alternative. We could wait for the rising price of oil to force this change to occur naturally by free-market forces, but this is probably a trap. The conversion will take many years and a horrendous investment in infrastructure. Rich industrial countries can afford this investment, third world countries can’t. If we wait until our economy has already crashed, we then become a third world country, with no way to finance the multi-trillion-dollar infrastructure upgrade needed to convert to a workable post-petroleum economy. We could be leaving our children a broken, oil-based economy and no resources to fix it. And our steadily increasing oil bill is beginning to impoverish us already.

The cheapest oil we will ever get is the oil we derive from conservation. It has been said that we waste more oil than we import. I’m not sure that we do, but it does seem that we do some pretty silly things with regard to energy use. In any large city, the exteriors of huge buildings are lit with flood lights, as a kind of advertising display. So what corporate message would this project—–that they’re wasting your money? In what way is your life better as a result of this energy use?

And why should there be a “long haul” trucking industry? Every day, tens of thousands of semi-trucks are loaded on one coast and driven non-stop to the other. Semi-trailers could as easily be picked up at the point of origin and driven to the nearest rail head, and hauled piggy-back on flat cars to the other coast. Motor freight, in addition to smashing our roadways such that they need continual re-surfacing, consumes about 9 _ times as much fuel per ton-mile as rail freight, so why do we do this? [11] Is your life better because a claw hammer made in China is hauled from San Diego by truck instead of by train?

In 1974, American cars got less than 14 mpg.[12] Our government enacted fuel standards that the auto industry said could never be achieved. But they were achieved, and by 1999, the average new American car delivered over 28 mpg.[13] Was your standard of living lower because your 1999 car consumed only half as much fuel?

Most people assume that average fuel efficiency is still rising. Actually, it’s now falling. The fuel efficiency laws had a loophole–pickup trucks and SUVs were exempt. So the buying public simply switched from cars to pickups and SUVs. A recent bulletin from Union of Concerned Scientists said not to blame SUV owners, but manufacturers, because off-the-shelf technology is now available to double the mileage of all classes of vehicles, but manufacturers won’t use it as long as they can sell what they have in production now. [14]

Any discussion of ethics and resource base eventually comes to the geo-political arena. Prior to the invasion of Iraq, a prominent critic said, “Once you’ve got Baghdad, it’s not clear what you do with it. It’s not clear what kind of government you would put in place of the one that’s currently there…How much credibility is that government going to have if it’s set up by the United States military when it’s there?…I think to have American military forces engaged in a civil war inside Iraq would fit the definition of a quagmire, and we have absolutely no desire to get bogged down in that fashion.” Who said that? It was Dick Cheney—-speaking as Secretary of Defense in 1991. [15]

So why the radical change of mind? Is he merely following orders of a president who wants a war that the first Pres. Bush did not want. Not likely. According to Bob Woodward’s new book, Plan of Attack, in foreign policy matters, Dick Cheney calls the shots in the Bush Whitehouse. There were those in the administration who were not convinced that we should attack Iraq, and George W. Bush was one of them. And it was Dick Cheney who did the convincing.

Bob Woodward thinks that Cheney’s change on Iraq indicates that he has simply gone mad. Cheney does make public claims that Sadam Hussein’s regime was connected to Al Qaida and other equally absurd claims. So if he’s not mad, why does he believe these things? Of course, he doesn’t believe these things—-he merely says them, because it’s the only pretext for the war he can come up with. Never confuse a country’s publicly stated pretext for a war with their actual reasons for it. Cheney’s reasons for the war, though not especially moral, are absolutely logical—but they are not the kind of reasons that you could sell to the U.N. or to the American people, and certainly not to the Iraqis. Willy Sutton was once asked, “Why do you rob banks, Willy?” He allegedly replied, “Because that’s where the money is!” We are in Iraq because that’s where the oil is. According to Ken Deffeyes, the Iraqi reserves have been vastly understated and Iraq has far more oil that either Saudi Arabia or Iran.

What changed Cheney’s mind is probably that in 1991, he still believed that as the price of oil rose, we would simply spend more on exploration, and find more. By 2000, it was becoming clear that there might not be much more oil to be found. In 1991, Cheney saw a denial of access to Iraqi oil as an annoyance—-by 2000 he had come to see it as fatal.

We are now in the position of having more military power than any country on earth, but we are beginning to lose that power because of our dependence on foreign oil. I see the current Gulf War as an attempt to leverage our military supremacy, while we still have it, into a secure oil supply, by grabbing Iraq while it’s still up for grabs. To understand the concept of leveraging military advantage into control of economic resources, it may help to think of it as a kind of mugging. Because of our wasteful habits, we may have to choose between forcing our children into poverty–or into piracy. We wouldn’t be facing this kind of moral choice if we had listened to Jimmy Carter in the 1970s and begun an extreme program of conservation and sustainable alternatives. Interestingly, Carter framed it as a moral issue even then. Do you remember the phrase, “moral equivalent of war?”

So far I’ve mentioned only the hydrocarbons we rely on for energy. But that’s only half the equation. You need 13 pounds of air to burn one pound of gasoline. Who could have imagined that, in our race to burn up the fossil fuels, we might run out of air first. We still have plenty of oxygen to sustain combustion, but we might not have any more air that we dare mix carbon-dioxide with. Which brings us to the next aspect of our declining resource base, which is global warming.

NOTES AND REFERENCES:
[1] Wall Street Journal, Mar 12, 04, “Losing Reserve—At Shell, Strategy And Structure Fueled Troubles;” subtitle, “ Oil Giant Relied On Its Prowess For Finding Fresh Oil—And Fell Behind Rivals,” By Chip Cummins, Susan Warren, Alexei Barrionuevo, and Bhushan Bahree.
[2] Wall Street Journal, Mar 26, 04, “High Oil Prices Send Some Investors to Other Energy Plays,” by Gregory Zuckerman and Peter A. McKay
[3] Note: Deffeyes believes that the current U.S.G.S. estimate for world reserves is too optimistic. U.S.G.S. estimates that total cumulative world oil production will ultimately equal about 3 trillion barrels. Deffeyes says 2.1 trillion is more likely. Since production tends to be a bell curve, when the peak production year is reached, then half of the total will have been used. If the peak has already occurred, and if we have only about 1.05 trillion left, that would be about 37 years of oil at the present rate of consumption. Of course, we won’t continue to consume at the present rate, because as world production declines, consumption will have to decline with it. Source: Hubbert’s Peak, 2003 edition, pp 146, and 157
Other industry sources have a more optimistic view. BP Statistical Review projects 40.6 years of consumption at present rates, based just on the proven reserves alone.
Source: Wall Street Journal, May 18, 2004, pA2, ”Oil Discovery,” by Bushan Bahree.

[4] The Nation magazine, Mar 8, 04, “Saving The Environment,” by Carl Pope, Exec Dir. Sierra Club, and Paul Rauber, Senior Editor Sierra Magazine
[5] U.S. Dept of Energy, May 7, 04, “Annual Energy Outlook. Energy Prices and Trends.” http://www.doe.gov/engine/content.do?BT-CODE=PRICETRENDS
[6] Note: In 1987, The Alaska Bureau of Land Management estimated that there was only a 19% chance of finding oil in the ANWR at all, and if there was oil, the recoverable reserves would not exceed 3.2 billion barrels. In 1991, The American Association of Petroleum Geologists estimated that recoverable reserves would be closer to 7 billion barrels. Then, in 1995, The U.S. Geological Survey gave a mean estimate of only 0.9 billion barrels. Then, in 1998, bowing to political pressure, the U.S.G.S. revised it’s estimate upwards from 0.9 billion to 4.3 to 11.8 billion barrels.
Source: New Scientist, 1/5/2002, Vol 173 Issue 2324, p16[7] Wall Street Journal, April 26, 04, “The Outlook,” by Greg Ip.
See also Fortune magazine, Nov 10, 03, “America’s Growing Trade Deficit is Selling The Nation Out From Under Us…….” By Warren E. Buffet.
[8] Note: A new process being used in a Butterball Turkey plant in Carthage, Missouri, now turns 200 tons per day of turkey guts into 600 barrels per day of #2 heating oil. Along with oil, the process produces carbon black, (a salable industrial commodity) and agricultural mineral fertilizer, natural gas, and pure water. There are no other wastes. The process is 85% efficient, in that only 15% of the fuel generated is consumed by the process. This process, called thermal de-polymerization, simply subjects organic material to intense heat and pressure till some of the carbon to carbon bonds are severed. The result is oil. It could produce oil from crop residue, animal waste, human waste, yard waste, scrap paper, scrap plastic, old tires, or nearly any organic material.
Source: Discover magazine, May 2003, p51, “Anything into Oil.”
[9] Note: A breakthrough at University of Minnesota strips hydrogen molecules from ethanol using a new catalyst made from rhodium and ceria. Until now, they could only get 3 molecules of hydrogen per ethanol molecule, but with this process, they are now getting 4, and believe 5 may be possible. The process does not require pure ethanol but uses a mix of ethanol and water, stripping hydrogen from both. The process does not require high temperatures. This makes ethanol a much more efficient fuel for cars because of the higher hydrogen yield, and because making pure, fuel-grade ethanol requires repeated distillation or other processing, and is more energy intensive than making a water/ethanol solution.
Also, carrying ethanol as fuel and striping hydrogen from it as needed to power a fuel cell solves a number of problems. Carrying pure hydrogen as fuel is difficult because hydrogen cannot be easily liquefied and can only be carried in heavy pressure cylinders. And using ethanol to power a conventional engine has the limitation of any heat engine—the Carnot equation, which limits efficiency according to the difference in absolute temperature of the source and sink: Efficiency = (t source – t sink) all over (t source). This limits you to a maximum theoretical efficiency of about 39% even in a frictionless machine; actual engines deliver about 20%. Fuel cells are not heat engines and are not subject to this limitation. They could theoretically be up to 100% efficient, and current models deliver 60%. While this process would still emit carbon dioxide, it would emit far less because far less fuel would be used.
Source: Science Feb 13, 2004, vol 303, p993, “Renewable Hydrogen From Ethanol by Autothermal Reforming, By Gregg Deluga et al; and p942, “Hydrogen from Ethanol Goes Portable,” by Adrian Cho.
Also, U of M News Service, News Release: “New Reactor Puts Hydrogen From Renewable Fuels Within Reach.”
http//www.ur.umn.edu/FMPro?-db=releases&-lay=web&-format=unsreleases/releasesdetail.html&ID=1155…
[10] USDA, Office of the Chief Economist, Office of Energy Policy and New Uses, Agricultural Economic Report # 814,“The Energy Balance of Corn Ethanol: An Update”
[11] Note: The energy intensity for rail freight is 346 Btu per ton-mile, as compared to 3337 for trucks. A single intermodal (piggy-back) train can carry 280 semi-trailers. Source: Railroads: Building a Cleaner Environment, American Assoc of Railroads, 2004.
[12] U.S. Census Bureau, Statistical Abstract of the U.S. 2002, U.S. Highway Administration, Highway Statistics Annual, “Table # 1082, Domestic Motor Fuel Consumption, 1970-2000.”
[13] U.S. Dept of Transportation, National Highway Traffic Safety Administration, Automotive Fuel Economy Program, Twenty-Fourth Annual Report to Congress, Calendar Year 1999 (Washington , DC: June 2001).
[14] Union of Concerned Scientists bulletin, April, 2004
[15] The Nation-Apr 26, 2004, p3, Editorial, “Turning Point in Iraq.”

IS HUBBERT RIGHT? ……….by A. N. Browne.
A review and synopsis of Hubbert’s Peak—The Impending World Oil Shortage, by Kenneth S. Deffeyes:
When M. King Hubbert, then at Shell Labs, made his famous prediction in 1956 that U.S. oil production would peak in the early 1970s, he was one of the most eminent petroleum geologists in the world. Yet most people in the oil industry dismissed it as nonsense. But in 1970, U.S. oil production did peak and has declined ever since.

In the mid-fifties, Mr. Deffeyes worked with Hubbert. Later, he left Shell Labs and joined the faculty at Princeton, where he remains today. In his book, Deffeyes points out that if the same models used by Hubbert to predict U.S. oil production are applied to world production, they predict that world oil production will peak in this decade, and then decline forever, while demand continues to rise.

He explains in layman’s terms why no more “major” oil fields will be discovered, and why an increase in price cannot change this. (He lists Algeria, 1956, as the last such discovery. Though the North Sea oil was not developed till the 1970s, its existence had been known since WWII ).
He begins by explaining that for there to be recoverable oil, six geologic conditions must be present:

1. First, there must be a “source rock.” This is a sedimentary rock that has trapped some organic matter within the rock. This might occur while a bed of sediment is being laid down on the bottom of a shallow sea, if an accumulation of miscellaneous organic debris were deposited too (dead fish, fish eggs, fish feces, dead microorganisms etc). If there is no oxygen available to decay this material, the rock layer eventually formed would contain nodules of organic material.
2. The source rock must, at some point in its history, have been buried to a depth of at least 7,500 feet. The core of the earth is molten. Once you get very far into the earth’s crust, the temperature starts rising because the layers of rock on top of you provide too much insulation to allow you to get rid of the heat that is slowly coming up from the core. The deeper you go, the hotter it gets. It takes heat to convert organic debris to oil. At 700 degrees F, you can do it in a few hours. At a depth of 7,500 feet, the temp is less than 200 degrees, but the conversion will still occur, over millions of years. At any lower temperature, it won’t convert at all.
3. But the source rock cannot have ever been as deep as 15,000 ft, because the temperature at that depth converts organic matter to natural gas, not oil.
4. The source rock must be porous and permeable, or there would be no way for the oil to get out of the rock.
5. There must be a reservoir formation that is both porous and permeable.
6. Then there must be a “cap rock.” Oil and water don’t mix, and oil is lighter than water. When the rock is porous, descending surface water can force the oil to rise through any porous rock layers above it, often going clear to the surface and evaporating— and being lost forever. But if, while rising, it meets a barrier, a “cap formation” (like a salt dome, or an anticline that it can’t get around or through), then it accumulates there and is recoverable oil.
All six of these factors must occur in the same place and in the correct sequence or there is no recoverable oil. Deffeyes then explains that where even the first of these conditions is met, test holes have already been drilled and the subsurface mapped more extensively than most people realize. In fact, this was mostly done over half a century ago. Most people think that the North Slope Oil was a fairly recent discovery. He points out that in 1923, Congress designated Point Barrow as a “Naval Petroleum Reserve.”

Deffeyes spent nearly fifty years in the oil exploration field and is 69 years old. Yet he claims that all of the major oil fields in the U.S. were discovered before he left high school, and all but one was discovered before he got out grade school.

It is often claimed that as the price of oil rises, there will be more incentive to discover oil, more exploration, and more will be discovered. Yet the decade in which the most oil was discovered was the 1930s. At that time, the depression had forced a world wide glut. Oil was a dollar a barrel only because of government production controls. A free market price would have been less than a dime a barrel. Yet most of the biggest oil fields in the world were discovered in that decade, including most of the Middle East. The 1970s saw a quadrupling of the price of crude, and not a single new major oil field was discovered.

It’s like looking for aardvarks in your refrigerator. The result depends not so much on the price of aardvarks, but rather on whether your refrigerator contains any. Deffeyes concedes that an increase in price will cause a flurry of drilling to find smaller pools within existing oil fields. But it’s pretty hard to hit a small target, so most of these will be dry holes, so the operation will be sustainable only if the oil which is produced is sold at a very, very high price. And in any case, it’s doubtful that the oil obtained this way would come on fast enough to compensate for the rate of decline of the major fields. It takes a lot of small wells to equal a few big ones. The U.S. now has 563,000 producing wells, and Saudi Arabia has only about 1,500. Yet they produce far more oil than we do. If you are a meat hunter, you have to shoot a lot of squirrels to equal one elephant.

The author discusses the history of oil drilling technology, from simple spring pole operated cable tools, to modern rotary drilling rigs that can drill at any angle, including horizontal. A cable-tool rig is simply a heavy star drill dangling on the end of a cable that is slammed up and down in the hole. A rotary drill (invented by Hughes Tool Co) is a rotary chisel assembly mounted on the end of a drill stem, which is a hollow steel tube made of individual 30-foot sections of pipe threaded together. Both a cable-tool and a rotary drill need “mud,” a heavy slurry used both as a lubricant and to float the chips to the surface. Cable-tool rigs were seldom used to drill more than 3 or 4 thousand feet; rotaries can easily drill over 15,000. Deffeyes points out that the development of the kinds of “mud” used in drilling is just as important as drills. A drill rig requires 30-75 hp to rotate the drill and 2,000 hp to run the mud pump.

Here is an interesting digression: Angle drilling is a Russian invention. The rotary drill head is mounted at a 10 deg angle on the end of the drill stem, and is driven by a turbine which operates off mud flow. If you also rotate the drill stem, then the drill ends up drilling a straight hole that is just slightly oversize, because the angle drilling averages out as you rotate the stem. But if you stop rotating the stem, it goes crooked in what ever direction it was pointing when you stopped rotating. He also discusses well casing procedures. When a test hole has been drilled to three or four hundred feet, a steel tube called a surface casing is placed in the hole, and concrete is pumped between the tube and the rock wall of the hole to cement it in solid. This is done to protect the integrity of the local ground water, and to give them some control of the situation if they hit an oil gusher or natural gas under pressure.

Below 400 feet, the drilled hole is bare rock. After the desired depth is reached, the drill stem is withdrawn and instruments are lowered into the hole and the resulting telemetry is studied by the geologist, and a foot by foot log is kept. ( In some states, this log becomes public information forever, and may be examined by any geologist, including your competitor’s.) When drilling stops, the investors must decide within six hours whether to abandon the hole and refill it with concrete immediately, or to begin “developing the well for production.” To develop a hole, you must place a steel casing clear to the bottom of the hole, cemented in all the way, and then cement the bottom shut too. Then, when the geologist has decided at exactly which depth the casing is to be tapped, a cluster of shaped charges is lowered into the hole to that depth and detonated. Many small holes are blown through the side of the casing, and the surrounding rock is fractured for several feet. The cost of developing a hole is as great as the cost of drilling it. So even if oil is found, the hole will be abandoned anyway unless the amount of oil appears to justify the additional costs of developing the hole.

Deffeyes mentions oil-shale and says that the oil-shale under Wyoming, Colorado, and Utah is the world’s largest oil deposit. (Actually, oil-shale is neither oil nor shale— It’s a source rock that has never been buried deep enough for the organic matter to convert to oil.) He also says that in the 1950s, when oil was $2.00 a barrel, they all thought that when oil reached $3.50 a barrel, oil-shale recovery would become economic. But when the price reached $37.50, it still wasn’t. Why? Because when the price of oil goes up, it takes certain other prices up along with it, including the price of oil-shale recovery operations. He therefore concludes that there may not be a price at which oil-shale recovery ever becomes feasible.

He mentions the Athabaska Tar Sands in Alberta and says that a 2 billion dollar plant is being built there. He expects that there will be oil produced from the tar sands, and the tar sand deposit is a huge deposit. But it won’t be cheap or easy. You need an open pit mine to mine the tar sand. You have to extract the oil from the sand, and then you have to dispose of the sand. This could be an environmental disaster if not done carefully. And the oil produced is of a low quality and contains a lot of sulfur.

He also talks about the modern methods used to squeeze more oil out of an oil field. Fluids pumped down wells to increase recovery include water, steam, carbon dioxide, butane, detergents, and many others. No one technique is applicable for all situations. All of these things can help, but there is no magic bullet.

In short, all these new technologies will increase the oil recovery rate of existing wells, and that will buy us a little time. But we will still have a world-wide shortage and a god-awful price increase, and it will be within a decade.

Though two chapters are devoted entirely to the math used by Hubbert, the reader can skip those chapters and not miss Deffeyes’ central point. It’s an interesting book and a must read for anyone who cares about the future. A.B./2003.


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