U.S. Considers Exporting More Oil for First Time Since ’70s

The U.S. oil boom is moving Congress closer than it has been in more than three decades to easing the ban on exporting crude imposed after the Arab embargo.

Advances such as hydraulic fracturing are leading to record production that may outstrip refinery capacity within 18 months to three years, said Benjamin Salisbury, a senior energy policy analyst at FBR Capital Markets Corp. in Arlington, Virginia. Net petroleum imports now account for about 40 percent of demand, down from 60 percent in 2005, according to the U.S. Energy Information Administration, the Energy Department research unit.

Congress has limited oil exports since the 1973-74 Arab oil embargo triggered shortages that pushed up prices and led to long lines at gas stations. An increase in domestic production last year by a record 766,000 barrels a day is challenging a notion that Americans need foreign oil, while setting up a debate policy makers may be reluctant to begin.

“Americans are unbelievably politically sensitive to oil and more specifically to gasoline prices,” Salisbury said in an interview. “For politicians to do anything, the pain has to come first. You have to see the rig count fall and then and only then can we have a decision about whether we want to export crude.”

The Energy Export Databrowser has been updated to the latest version of the BP Statistical Review. A few charts are provided below the fold that help illuminate the following stories evident in the data:

1. The US is less reliant on imports from across the globe
2. UK energy production from all sources continues its decline
3. Brazil is unlikely to become a major oil exporter

The databrowser is available in the following languages:

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Happy Exploring!

The EIA has noted in This Week in Petroleum that, for the first time, the sum of non-OECD country demand contributed more than half to the total of liquid fuels consumed in the world.

It does, however, point out that the projections of the Short Term Energy Outlook are for the two curves to re-intersect at the end of 2014.

This is a guest post by Adam Brandt, Assistant Professor from Stanford University, Department of Energy Resources Engineering.

1. Introduction

Low energetic returns (e.g., EROI, NER) from oil sands extraction and upgrading have been noted as a potential limit to the development of the oil sands as a substitute for depleting conventional oil resources (e.g., Herweyer and Gupta, 2008). In this article we will examine this claim from a variety of perspectives. Specifically, we will examine the following questions:

• Are the energetic returns from oil sands extraction lower than conventional oil?
• How have the energy returns from oil sands extraction varied over time?
• What energy sources are used in oil sands extraction, and what are the implications of this sourcing for net energy availability from the oil sands?
• Will low energy returns limit the net output of energy from the oil sands industry?

This article is based on the peer-reviewed journal article: Brandt A.R., J. Englander and S. Bharadwaj (2013). The energy efficiency of oil sands extraction: Energy return ratios from 1970 to 2010. Energy.

Let me begin with two brief apologies – first, my last post on Iraq on TOD was hit with a vast quantity of spam that made it difficult to find all the pertinent comments; hopefully this post will have a little easier time. And secondly, although I used an EIA graph to show Iraqi production and consumption, Westexas was kind enough to point to an error in the domestic consumption plot. The more accurate consumption plot can be found here through 2011, and the figures for last year are up to 880 kbd, higher than the plot I showed, and close to the current capacity (900 kbd) of the refineries in the country. Some of the difference between the two plots comes about because Iraq continues to import significant quantities of refined oil products.

Last week I mentioned that while the potential production from current contracts in Iraq held great promise for the future, that it was unlikely that those targets would be reached. This post is meant as an explanation for that pessimism, but it should be noted that Iraq itself is now seeking to revise the initial targets since it perceives that too much oil in the market may well be destabilizing. This, even though growth is spread over the next decades, and demand is projected to increase at more than 1 mbd/year for the next few years.

There is often quite a debate in the Peak Oil community over the difference between a reserve and a resource. Simplistically a resource is, for the sake of discussion, the amount of oil that is in the ground in a certain country, while the reserve is the amount of oil that can be both technically and economically recovered from that resource. The numbers can differ quite markedly, and the judgment as to whether a certain body is a reserve is finally made when a well is drilled down, and production (or not) begins.

Just having the reserve available is not, however, within the global discussion of Peak Oil, an adequate sufficiency. Because oil well flow declines over time, it is important that the rate of oil production from that reservoir, and the timeliness of its arrival within the supply chain, be considered. This is particularly true in discussions about the help that the reserve will provide in ensuring that there is an adequate supply available when the global demand needs it. Normally, as noted, the decisions about production are made on geologic and economic grounds, but it would be foolish not to recognize that there are other factors. Consider the case of Iraq. It is a common the assumption that Iraqi oil production will rise considerably, with some suggesting it will reach the levels currently only achieved by Russia and Saudi Arabia, although there are some who project it might even rise to as much as 13 mbd, given that there are contracts in place, which if fulfilled on time, would raise Iraqi production four-fold to 12 mbd by 2017.

In their Special Report on Iraq last year, the IEA noted that the country is already the world’s third-largest oil exporter, with the potential and intent to increase production much further. And, as the EIA notes, Iraq became the second largest oil producer in OPEC when it passed Iran at the end of last year.

Iraq is currently producing around 3.1 mbd of crude and thus the potential production levels, and their contribution to reserves and to the daily global need for supply, still has a way to go. With so much oil potentially available, and yet with considerable question over the rate at which it will arrive, it is worth examining the conclusions that the IEA came to, before the current increase in violence occurred. This new spate of attacks comes after an interval when violence was decreasing in the country, and may prove a further impediment to significant growth in production.

We have reached, I would suppose, a period of complacency in the perception of the coming of Peak Oil. We are in a period where, as recent posts have shown, the promises of bountiful supply are built on increasingly tenuous propositions. Unfortunately, the evolving story of the mess that we are heading into is at a point where the critical aspects of the problem rate minor paragraphs in articles that largely talk about something else. And the potential of the fossil fuels that lie within shale have commentators drooling over the benefits that will come from this abundant resource. Unfortunately, within this euphoria there are sufficient concerns that need airing, since overall, the situation has not changed that much since the Hirsch Report was published, just over eight years ago.

One of the points that was made in that report was that it would take some twenty years for new technologies to mitigate the foreseen shortages of liquid fossil fuels, made when gasoline prices averaged some $2 a gallon. Driven by concerns over climate change, there has been a significant effort to find alternate fuel options that can provide a renewable option. And the hopes for these producers lead to predictions of a different future.

The British Department of Energy and Climate Change (DECC) has just released a report on the future of coal-fired power plants in Germany, Spain and the Netherlands. It notes that although Germany will open more coal-fired power plants this year than at any time within the past twenty years, the future for coal is not that promising. In rough numbers, Germany has a peak demand of 85 GW of electricity with coal and lignite capacity of around 47.6 GW in 2011. From then until 2015, an additional 10.7 GW of coal-fired plant will come on line. The DECC report notes that while an additional 2.7 GW of plant are in development they have not advanced and, it is suggested, they will likely be cancelled. Some 22 coal-fired projects have been cancelled, and four postponed in recent years. A new plant does not spring, like corn, fresh out of the ground within months of planting. Rather there are years of effort, and millions invested, before power starts to flow. The report brings these views to the following:

We conclude that further new projects to build coal-fired generation in Germany, the Netherlands, and Spain are all very unlikely.

Our energy system is evolving due to depletion of cheap fossil fuels and the need for carbon emission constraints. Government and business are under pressure to tackle the energy challenges of rising energy costs, energy security, and reducing greenhouse gas emissions. We witness rapid changes across countries as this evolution takes place, steered both by markets (investment decisions) and government (policy decisions).

It is essential for energy professionals to stay well informed with the latest insights in this evolving world. For this reason, Euan Mearns of The Oil Drum, myself and several others, are organizing the first three-day Global Energy Systems conference, which will take place in Edinburgh, United Kingdom from June 26 - 28 2013. The conference is meant to deliver key updates on the most pressing energy issues and challenges facing our energy system, as well as providing a forum for exchange of substantially different viewpoints. It is supported by several universities and research institutes including University of Aberdeen, University of Edinburgh, Oxford Research Group, Chatham House and others.

The scope is deliberately very broad, covering most primary energy sources, so that a global view of the current energy system can be presented. Session topics include “the limits to easily accessible fossil fuels”, “frontier fossil fuel technologies and basins”, “the viability of nuclear power”, “the costs and benefits of fossil versus renewable electricity”, and “the economics and policy of energy systems”. A few of our confirmed speakers include Michael Kumhof (IMF), Sir David King (former Head Smith School Oxford University), Friedrich Schulte (Head of Technologies RWE), Dr. William Blyth (Director Oxford Energy Associates) , Peter Jackson (IHS CERA), Lord Ron Oxburgh (House of Lords UK Parliament), Richard Stainsby (Chief Technologiest UK National Nuclear Laboratories), Alexander Naumov (Group Economics BP), Guy de Kort (Shell Vice President GTL), and Tatiana Mitrova (Head Oil & Gas Energy Research Institute Russian Academy of Sciences).

Read below the fold for an overview of the conference programme and confirmed speakers to date.

News of the future was, in my youth, something that one found by crossing the palm of a lady in a dark tent with a piece or two of silver (or the modern equivalent) at one of the fairs that came to town. Such opportunities still exist, with all the caveats that existed back then likely still being in force. However, projecting the future, whether of the weather, the likely corn crop this year in the United States, or the production of crude oil by the nations of the world has become a much bigger business with copious tables, graphs and theories replacing the rather worn pack of cards or crystal ball of my youthful experience.

Our part of the world underwent a drought last year severe enough to kill several trees in our yard, for example, as well as hurting the corn crop. This year, corn plantings have been severely impacted by the heavy rains and cold weather, so that decisions on crop plantings have become more complicated and delayed, with follow-on impacts on the ultimate yield in a number of Midwestern states. Corn yield apparently falls at an average rate of 2.3 bushels per acre per day of delay in northern Wisconsin. These changing conditions make it difficult to assess how much ethanol, for example, will be available to meet demand, although the latest EIA TWIP holds out some optimism for this year.

The impact of the drought on corn prices, and the consequent fall in ethanol production, as production costs rose, are directly visible from their plot of the two over the last year.

However, with the weather impacts still being assessed, it is already being concluded that the US corn crop is unlikely to reach the record level of close to 14.6 billion bushels that were earlier projected. It still, however, has the potential to reach around 12.3 billion bushels, which would satisfy the just under 5 billion bushel need for ethanol, as well as other demands of the market. By May 12 only 28% of this year's expected crop had been planted, in contrast with a normal year where 65% would be in the ground. Thus, even the relatively short-term projections of the EIA could yet be in trouble for this year.

Perceptions based on perhaps too small a collection of information can lead into opinions that, on investigation, turn out to be incorrect. Just recently a couple of friends had mentioned that charities that they are associated with were seeing a decline in donations. I built this into a picture of the general public being less able to afford earlier levels of giving, perhaps because of the continued impact of higher costs of fuel. However, the perception is as a general statement, wrong, and (via the National Park Service from The Giving Institute) I learned that:

Americans gave more than $298.42 billion in 2011 to their favorite causes despite the economic conditions. Total giving was up 4 percent from $286.91 in 2010. This slight increase is reflective of recovering economic confidence.

The greatest portion of charitable giving, $217.79 billion, was given by individuals or household donors. Gifts from individuals represented 73 percent of all contributed dollars, similar to figures for 2010.

In the perception that is becoming increasingly prevalent on the future of energy supplies, and particularly on crude oil, the current adequacy of supply is projected forward to anticipate no problems with supply in the future. Peak oil is now suggested to occur not because the supply is limited, but because with the increasing use of renewable energy, demand will peak, and then decline. Bloomberg New Energy Finance founder Michael Liebreich is quoted as projecting that the growth in fossil fuel use will almost stop by 2030, while Citi Commodity Researchers are suggesting that the increases in prices will drive increases in efficiency that will bring a peak in oil demand “much sooner than the market expects.”