NO KEYSTONE XL PIPELINE - GD Part 2.4

This is a <<"Mommy, What are Sparks Made Of?">> Comment on the U.S. Department of State (DOS) Notice: Presidential Permit Applications: TransCanada Keystone Pipeline, L.P, National Interest Determination

NO KEYSTONE XL PIPELINE

The United States must divest from petroleum. The benefits of that fuel over the last century have been enormous-- because cheap oil has effectively been like steroids to the economy of the 20th century, but cheap oil is a thing of the past. Our economy is addicted to oil and we desperately need to break the habit, or risk continuous global economic instability. 

Committing to the Keystone XL Pipeline is the wrong move-- economically and environmentally. The SAGD bitumen removal system provides a low EROI, which makes the tar sands a poor energy choice. Over 30 oil companies have been working on this project for decades and the best extraction method they've come up with yields perhaps a 4:1 energy gain *prior to* cracking, shipping, and refining; while using a substantial amount of natural gas (to extract the projected amount of 173 billion bbl of proved reserves requires approximately 7.2 trillion cubic meters/254 trillion cubic feet of natural gas-- 4.3 times Canada's current natural gas reserves).

The overall benefits of the project will be barely noticeable. Even when the tar sands region reaches target production, we will barely know that it's even happening. We will neither experience a substantial gain in supply over the long run, nor a reduction in price; in fact, the Tar Sands project depends upon high oil prices to continue.

Transport by pipeline to Gulf Coast refineries will look very good on the books-- but in real life, the gains are slim and the potential costs are immense. TransCanada promises an absurd amount of job creation, but looking over the actual staff of existing pipelines shows that few actual permanent jobs will be involved in maintaining this new one. 
Proponents say that Keystone XL will be safer than "oil trains" -- but it would be foolish to assume that the pipeline would end transport by train (and if it does, did the pipeline just net negative job creation?). A temporary reduction in shipping by train may occur, but eventually the bitumen will be shipped by *both* train and pipeline. The chances of spills/accidents will have increased, not decreased.

From the pipeline to the tailpipe, this "oil" resource is dirty and environmentally disastrous.

The cost/benefit analysis of this project has netted positive results only in the "best case scenario" and even then, the advantages are rather insignificant and temporary. It is not worthwhile to approve this pipeline. The United States needs to put more effort into reducing its dependence on oil and other fossil fuels. The best way to meet that end is to make fewer future commitments to oil, and concentrate more on research & reduction in the present. 

The US could be a leader in alternative energy research and production, and could serve as an example to the rest of the world -- the developing world especially -- to divest from fossil fuels and build a more sustainable and resilient world economically and environmentally, but we cannot do this by expanding our current dependence. 

Say "NO" to TransCanada's Keystone XL project.

Running With the Red Queen - GD Part 2.3

"Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else — if you run very fast for a long time, as we've been doing."
"A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"
- "Through the Looking Glass" by Lewis Carroll

The Myth of "Energy Independence" in the United States: Running with the Red Queen

The energy situation in the United States is currently a lot like this scene from "Through the Looking Glass," in which Alice and the Red Queen are running faster and faster but still don't seem to get anywhere.

The fact that the US's net imports of crude oil & petroleum products has shrunk in the past few years is touted as evidence that the US can achieve "Energy Independence." However, it is mainly a misrepresentation of facts, or a misunderstanding of the data.

At the surface, it looks very good. The US is now producing more oil than it has since 1989, and net imports have fallen to about 6.2 million barrels per day -- lower than net imports of 1991 and 1988 (the historical high was 2005's net imports of 12.5 million barrels/day).

Note: This graph depicts data in Barrels per DAY

However, total imports have not followed exactly the same curve, and are substantially larger than net imports. 

Note: This graph depicts data in Barrels per YEAR.

There are several reasons for this. The biggest factors are:

• Total imports minus exports equals net imports; the United States is one of the largest petroleum product exporters in the world, despite the fact that it routinely consumes more product than it produces.
• Total imports have fallen in general, while exports have increased dramatically. 
• US consumption of crude oil and petroleum products is presently at its lowest point since 1997/1998. Per capita oil consumption is at its lowest point in over 50 years.
• Domestic oil stocks; an on-hand supply of oil and petroleum products that have already been produced and/or refined, but not yet sold/consumed.
• Refining gains; simply put, is the reality that the refining process creates gains in volume from barrels of crude oil to barrels of refined product.
• US oil companies sometimes import crude, refine it, and then export it or sell it domestically as a domestic product.

Note: This graph depicts data in Barrels per DAY.

US oil exploration & production has been swiftly ramped up in part due to President Obama's "All of the Above" energy strategy, and relentless political pressure by the oil & gas industry. "New" oil discoveries and "new" technologies have made it possible to slingshot the US into accelerated production.

(The word "new" is in quotation marks because the only thing that's truly new about these oil resources and extraction methods is that the political advantages and price of oil are finally high enough to warrant these types of operations).

US oil production is currently higher than it has been at any time since 1989. That's not bad. To some, it looks like the United States is finally on the road to self sufficiency.

Note: This graph depicts data in Barrels per DAY
.

The US has never produced more than 10 million barrels per day, while consumption has remained close to 19 million barrels per day for decades.

Note: This graph depicts data in Barrels per DAY.

Comparing US oil consumption to oil production data also reveals that one reason total imports & net imports have fallen is partly due to rising efficiency. However, consumption has also fallen because of high oil prices:

The above graph shows US oil production & consumption, represented by yellow & green bars, respectively. The blue line represents US oil consumption per capita. Data depicted in Barrels per DAY.

The gains in efficiency/conservation of oil consumption have been exemplary over the last 35 years. However, the main motive for increasing efficiency/conservation seems to be high oil prices. When the prices fall, consumption appears to rise slightly or stay stable. This next graph shows oil consumption per capita over the price per barrel (inflation adjusted):

All that is fairly obvious and basic economics. The bottom line looks very good on a dollar-for-dollar basis. While oil prices are fairly high, oil companies can continue to use these "new" techniques to open up these "vast" US oil resources that were previously unprofitable to extract. That opens the door to further innovations that may bring down the price of oil, right? Won't the US be able to produce more and more oil until it has no reason to import, thereby achieving "Energy Independence?" 

...Probably not. As implied earlier, the fact is that even at peak production in 1970, the US was still only producing about half as much oil as the country currently consumes each day. 

The thing is that the oil that US companies are drilling for right now is simply not as easy to get as it was in the 1970's. Once the US hit its peak, it took more and more oil rigs to locate discoveries & produce even fewer barrels of oil than the year before:

There are many other kinds of oil rigs in use in the US, but rotary rigs account for more than 80% of oil production.

The reason for this is decline rates- when wells are tapped, they produce huge volumes of oil for the first few years, then taper off to a fraction of their original production volume. When the decline rates fall past a certain "economic" limit, oil companies sell them to smaller companies or simply seal them off.

While prices remain high, politicians remain under intense pressure to open up private and public lands to new oil & gas operations. In order to achieve the same oil production that the US had in 1989, oil companies have three times as many oil rigs in operation searching for more profitable plays.

How much of its own oil would the US have to produce to be considered "Energy Independent?" Eighty percent? Ninety percent? One Hundred percent?

Given that the US has over 1,400 crude oil rotary rigs in operation today, and produces only about 48% of the oil it consumes, how many rigs would it need to achieve 100%? How many new plays must be discovered & how many new wells have to be tapped each year to sustain that rate?

That's why the situation is very much like that scene in "Through the Looking Glass." The US will have to run faster and faster each year just to stay in the same place.


UPDATE:
For reasons that are complex enough to deserve probably an entire mini-series of blog posts, the price of oil dropped substantially in recent months. The main result of this will be scaling back on exploration & discovery, fewer new off-shore and hydraulic fracturing projects across the board, and possibly closing down some of the less profitable operations by both small and large oil & gas companies. A bit down the road (depending on how long this all lasts) we may see some mergers & acquisitions among oil companies-- but we'll definitely be seeing some of the smaller/newer operations closing down or filing bankruptcy.

Few of us can accurately guess how long this oil price collapse will last, but it's likely to shape the way the world will produce oil for the next few years (at least) and will likely secure Saudi Arabia as the #1 oil exporter in the world-- putting the US back down to #2.

This type of market instability is disruptive to the economy as a whole and (in my personal opinion) is further evidence of the need to develop & deploy more alternative energy solutions!

For more info FAQ about Rotary Rigs and how these counts are performed, go to:
http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsfaqs

Canadian Tar Sands and the Keystone XL Pipeline - GD Part 2.1

Keeping our perspective on energy and resources is essential to adapting to the likely problems our planet will face this century. While at some point I will probably return to the issues of EROEI (Energy Return On Energy Invested) and the effectiveness/efficiency of certain biofuels and renewables, there are a few pressing political and economic concerns in the news today, such as the Keystone XL Pipeline, that are misrepresented by news media and special interest groups.


Canadian Tar Sands (Athabasca Oil Sands) and the Keystone XL Pipeline

The Keystone XL Pipeline is a major construction project under negotiation right now between some major oil companies and the US and Canadian governments. In Alberta, there is an area known as the Canadian Tar Sands (aka Athabasca Oil Sands). The region is virtually covered in bitumen (tar) which can be "upgraded" into synthetic crude oil. The total deposit is estimated to contain 1.7 trillion barrels of this substance, of which industry leaders think 173 billion barrels of synthetic crude can be produced. Of course, this has oil companies in a state of excitement, as synthetic crude yields a much higher profit than conventional crude oil.

Advisory: Objects in this photo are larger than they appear. The dump trucks pictured above have a 400 ton capacity. The actual dimensions of each truck are 45ft long x 35ft wide x  25ft high.

 As Royal Dutch Shell reported in 2006, conventional crude yielded a profit of $12.41 USD per barrel, while synthetic crude provided $21.75 USD per barrel. There is a massive incentive to continue ad infinitum with this project, since the potential for long-term profits are enormous -about $3.4 trillion USD for extracting just 10% of what bitumen may be in the sand. With the worldwide recession weighing heavily on the US economy, many have been swayed toward supporting this project.


Proponents of the Keystone XL Pipeline project within the United States tout some specific benefits from the pipeline's construction:

• Jobs creation for construction and maintenance of the pipeline will stimulate the economy while combating unemployment.
• Canada's oil is "ethical oil" (meaning that theirs is a government that is seen as just and fair) and their oil proceeds do not support governments which are seen as dangerous to American interests.
• Refining the oil in facilities located on the US coast of the Gulf of Mexico is preferable, environmentally, to wherever these products may end up otherwise.

However, there are a few problems with the above arguments, which I will address in brief:

• Even if the project were approved today, it is unlikely that construction will begin before 2015. Appropriating the land on the pipeline's path may cause further delay, as it involves securing "eminent domain" over private property. The outlook for completion of the pipeline is murky, at best. My guess is maybe 2021, at the earliest. It is unlikely to cure our current unemployment/economic problems- it's actually more likely that the economy will begin to do better on its own before then. 
• Canada has issued permits for the extraction of product from the tar sands. Once the bitumen has been extracted, it belongs to the oil companies, not the Canadian government. Oil companies will continue to extract "unethical oil" from countries around the globe. While it's likely that Canada will receive some payment for the bitumen, global demand will keep stuffing the pockets of the "less ethical" oil suppliers.
• The United States has the largest refining capacity of any country on Earth. Much of the world's oil comes here to be refined to begin with, and then is shipped by tanker to foreign markets. 

Further, there are significant environmental concerns, both due to the extraction process and the transport of the product.

Royal Dutch Shell claims they are very concerned about protecting the environment, and do their best to keep wildlife away from tailing ponds where they store waste water:

"The pond can contain high concentrations of acids and salts which are potentially harmful to wildlife. Birds are at risk as they can land on the pond. We detect approaching birds using radar and our system produces noise, light and movement to deter them from landing." 

Most strikingly, oil and gas companies are using the cleanest fossil fuel source, natural gas, in their process to extract a form of oil that is dirtier than conventional crude. But a very important aspect that has not been getting much attention is the actual overall energy and resource cost of the project. 

Net Gains vs. Political Consequences

If oil companies can get 173 billion barrels of oil out of the tar sands, it is a mere 12% increase in the world's total oil reserves-- on top of that, the act of extracting it would reduce the world's natural gas reserve supply by 3.8%, while making Canada and the US more dependent on natural gas imports from countries which have large natural gas reserves: Russia, Iran, Qatar, Saudi Arabia or Venezuela.

Tar sands before extraction.

More than thirty oil and gas companies are using natural gas to power the energy intensive processes which extracts bitumen from the Canadian Tar Sands. The entire deposit is literally a sticky, dirty mess. As the name of the area indicates, the resources are mixed with sand, gravel and other contaminants. An average of four tonnes of earth must be excavated to extract each barrel of oil. Once extracted from the sand, bitumen doesn't flow well through pipelines because it's extremely heavy and semi-solid-- so it has to be "cracked" on-site or mixed with lighter oil before transport.


The most energy-efficient method for extraction is called Steam Assisted Gravity Drainage (SAGD), which uses about 1.54 giga-Joules (GJ) per barrel of synthetic crude produced, which means that they must use 41.62 cubic meters of natural gas to extract and refine each barrel into synthetic crude (oil contains about 5.4-6.1 GJ per barrel) -- in terms of energy input versus returns, this is barely acceptable at 4:1 [UPDATE: the actual average EROI for SAGD is closer to 3:1, on average], and we haven't even looked at "cracking," transport and refining yet. Worse, when you note that for this to work running on natural gas as they have been, it would require 4.3 times Canada's entire natural gas supply (or 7,200 billion cubic meters of natural gas) to extract 173 billion barrels of synthetic oil from the tar sands.

Steam Assisted Gravity Drainage (SAGD)

Proven natural gas reserves of Canada are in the range of 1,700 billion cubic meters. Canada consumes 93.8 billion cubic meters each year, and exports 92.4 billion cubic meters to the U.S. which equals 186.2 billion cubic meters. At that rate of use, without the use of even one cubic meter for the extraction of bitumen from the tar sands, that 1,700 billion cubic meters would last about 10 years (although that figure does not account for growth of consumption). Canada would have to begin importing natural gas from elsewhere, and slow exports of natural gas to the United States.

Canada is the main supplier of natural gas imported to the US, so this is likely to drive up prices of natural gas here at home. While Canada possesses only 0.9% of the world's natural gas reserves, it would require 3.8% of the entire world's supply just to extract the estimate of recoverable oil-- 173 billion barrels-- which is about 5 years' worth of oil use at the world's current consumption rate, or 4 years, if you figure in 1.21% growth of consumption (which is an average of the growth of oil consumption over the last 30 years).
So counting on oil and gas companies to extract even 10% of what may be in the Canadian Tar Sands would actually result in both the US and Canada depending much more heavily on nations such as Russia, Iran, Qatar, Saudi Arabia or Venezuela for natural gas, and none of these nations are likely to become major suppliers to the United States- at least not willingly.

Iran, aside from having the world's 3rd largest oil reserves, also possesses the 2nd largest natural gas reserves in the world- 15.8%. Their oil and gas resources, like their banks, are nationalized and strictly controlled by the government. Justifying an invasion on the basis of "preventing a nuclear Iran" could just as likely be an attempt to "privatize" the Iranian natural resources. That prospect would seem highly unlikely if only it weren't for the US's long track-record of political and economic manipulation in Iran.



Shale Gas and Hydraulic Fracturing (or "Fracking") for Undiscovered Reserves

A commonly suggested (non-military) solution to this problem is to begin "fracking" for natural gas, absolutely everywhere. A number of environmental questions have been posed as to the safety of these operations, which have been suspected of poisoning aquifers used for drinking water and causing small earthquakes. Passed during the George W. Bush administration, the Energy Policy Act of 2005 (Sec. 322) allows a hydraulic fracturing technique invented in the 1970s by Halliburton exemption from the Safe Drinking Water Act (42 U.S.C. 300h(d)). It is colloquially known as the "Halliburton Loophole". However, a bill passed in 2011 requires companies to disclose the chemistry involved in such operations, but does not require that information to be disclosed to the public. UPDATE: A new regulation was announced recently, requiring chemicals to be disclosed to the public, but only after the drilling has begun.

Hydraulic fracturing of shale rock (aka "fracking")

Conventional mining of the shale rock is out of the question. Shale rock is often very deep below the surface and horizontally distributed, making conventional extraction nearly impossible. Pound-for-pound, the rock in which the natural gas is trapped contains less energy than a box of breakfast cereal, so physically digging for the rock is not feasible under any situation.

However, using horizontal drilling and pressurized chemicals, fracking operations can break up the porous shale and force the natural gas out. While the price of natural gas is currently too low for this method to be feasible, the hypothetical prospect of finding large deposits is almost too good for oil & gas companies to pass up.

For example, the Canadian province of Saskatchewan announced that there may be 2.9 trillion cubic meters in undiscovered natural gas in its shale. Undiscovered literally means nobody knows if it's there or not in commercially extractable quantities- all they know is that certain rock formations exist and are likely to contain an unknown quantity of natural gas (sometimes testing has been done and deposits are confirmed, but not yet "explored"). The purported supply in Saskatchewan is actually only a 15.6 year supply for Canada's annual consumption, based on 2010 usage & exports to the US (-not accounting for growth in consumption-).

That's still nowhere near the required 7,200 billion cubic meters needed for extraction of the aforementioned tar sands but if the price of natural gas were to increase, even a little bit, fracking shale rock would generate massive profits.

The United States possesses the 5th largest proven reserve of natural gas- around 7,700 billion cubic meters (based on estimates from a 2011 report by BP), but we use more than our domestic annual production, which is why we import from Canada, although some contend that we may no longer be required to do so; the United States may be home to an extremely large (but undiscovered) deposit of natural gas locked up in shale rock.

"Of the current total natural gas proved reserves of 244.7 tcf [6.929 trillion cubic meters] , EIA includes 32.8 tcf [928 billion cubic meters] of proved reserves as shale gas.
No systematic assessment of undiscovered technically recoverable shale gas resources has been conducted for the United States, though industry and academic experts estimate that the technically recoverable volumes of natural gas from these shale deposits are very large."

 -U.S. Fossil Fuel Resources: Terminology, Reporting, and Summary (Congressional Research Service, November 30, 2010) 

Instead of mining for natural resources that could be there, maybe we should start using the ones we know we have more wisely. Since the natural gas which may be trapped in the shale isn't going anywhere until we decide to start fracking it out, a reasonable course of action might be to explore renewable energies and technologies for energy production. It will create jobs now, not at some murky point down the road. We will still have all of our "untapped" resources in place, and we will be all the richer for doing it.

However, this prospect is tricky because "we" in the United States don't actually own our country's natural resources. Property owners do. And although Canada has a nationalized oil & gas concern called Petro-Canada, a deal has been struck with the landholders (oil & gas companies) in the western provinces wherein they pay a royalty to the government for extracting the resources. Afterward, they're free to do whatever they wish with the product- including shipping it off overseas to the highest bidder. It's all in the name of profit.


Policy Decisions

We have to start taking this seriously. The United States consumes an obscene amount of energy (about 20% of the world's energy demand each year)- over 80% of which comes from fossil fuels that take millions of years to form and are increasingly more difficult and energy-intensive to extract. What's more, these fuels are being consumed at an alarming rate which is not driven by anyone's best interests. The answer really should be in developing more efficient energy use, reducing overall energy use, and the deployment of renewable energy resources.

The Obama administration's budget request for Dept of Energy's Energy Efficiency & Renewable Energy (EERE) division is only $2.3 billion. While that's a sizable increase over the previous US President's endowment, it's not enough.

I think we can all agree that since energy is so central to our way of life we must spend more money on developing clean and renewable energies. It is actually a matter of national security. If the US government allocated even 1% of the Dept. of Defense's budget to cover research and development on these issues each year, it would more than triple the current budgetary investment.

Approaching this dire issue as a national security issue, we could employ the Army Corps of Engineers to develop or build any structures or machinery required for renewable energy services-- especially any of those which are not specifically profitable-- instead of subsidizing private companies who are primarily seeking high profits.

I think the solutions to our energy problems are within our grasp, but we need to think differently- and be willing to approach these problems without a profit motive. What we come up with could improve the lives of people all over the world and clean up the environment at the same time.


Perspective

In the best-case scenario the Canadian Tar Sands project, together with the Keystone XL Pipeline, will net some pretty insignificant temporary advantages while making the US and Canada more heavily dependent on foreign suppliers of natural gas.

The subsequent acceleration of conventional natural gas consumption will certainly drive up prices- which will make fracking explorations more appealing. Right now it's not being done on a large scale because the price of natural gas isn't high enough. However, once we allow oil & gas companies to begin wasting 7.2 trillion cubic meters of the world's current supply on extracting a four-year supply of oil, there will be little choice.

Without development of clean & renewable energy sources,  the world will be stuck on a downward spiral of resource depletion until it cripples us. Right now, the people of Canada and the United States have an opportunity to make a choice about the future of energy. Committing to the Keystone XL Pipeline project is choosing the wrong path. It's not a good idea economically, environmentally, or politically for anyone except the oil & gas industry, who stand to make trillions of dollars while encouraging energy consumers to squander the world's fuel resources.