The Energy Revolution Part One: The Biggest Losers
Published on: July 8, 2012
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  • Anthony

    “In line with Via Meadia’s policy of trying to focus attention on the most consequential events of the time….” So WRM, here we are towards a potential path to prosperity via innovative energy capture…

  • thibaud

    Our shale bonanza’s great news, of course, but non-specialists should be wary of becoming too enthusiastic about reserves numbers being tossed around.

    So it’s silly to talk about a “new age.” Maybe we’ll have a boost for a decade or two, and some prescient oilmen and investors will make a lot of money. The chemical manufacturers will benefit.

    But it’s farfetched to say this presages a geopolitical revolution, or that the Saudis will not remain the swing producers with enormous, outsized influence as a result, or that the middle east will not continue to ensnare and bedevil us.

    Another issue with Mead’s rather excitable, breathless reporting: perhaps his interns can actually do some research regarding the proven reserves we’re talking about. In reality, even the industry’s best analysts know that these numbers have a huge degree of uncertainty attached to them.

    Case in point: It wasn’t too long ago that Poland was being touted as having enough reserves to make it permanently independent of Russian natural gas – and then Exxon’s engineers announced that the reserves estimates were an order of magnitude smaller than initially estimated.

    Good news, sure, but a senior professor would do better to curb his naive enthusiasm and apply a bit of skeptical judgment and detachment.

  • MarkE

    The “price” of energy is the limiting factor of manufacturing and even agrarian societies. There is no reason to believe that fracking couldn’t produce gas in every country of Europe, India, and Africa. Once they push-by institutional lethargy, financing, and the environmentalists, cheap natural gas could easily jump-start all of us out of the worldwide recession. On a more tactical scale why not put a gas well and generator in the towns which are more supportive of us in Afghanistan?

  • Kris

    For a long time now, Saudi Arabia has been both an enemy of the United States and indispensable to it. I long for the day when at least one of the two is no longer true.

  • Kenny

    Good international analysis, Mr. Mead.

    If you were to include the domestic side of things, among the biggest losers would be the Greens with their silly windmills and the ethanol crowd.

    Looking at things international and domestic, it is clear that all the identified losers are the bad guys while the winners are the good ones. Sweet!

  • None of this changes the fact that we should get rid of the income tax, and start taxing consumption.

    A broad, low BTU tax on every source of energy (equalized down to the BTUs created at the time of use) would do wonders for conservation. If you want to tax renewables slightly less than carbon-based energy, you could do away with all the other failed subsidy schemes.

  • Keeping in mind that Saudi reserves, etc., are also highly uncertain (=could be politically inflated) numbers. If you think that self-interested puffing is evenly distributed throughout the world, then a universal skepticism makes the Meadian narrative plausible again.

  • joe mack

    woohoo!
    get me a Mustang and an open highway
    FREEDOM!
    mobility=free in many ways, my ancestors from Europe believed it.

  • cacrucil

    No matter how much I disagree with some of Prof. Mead’s posts, articles like this are why I will never stop reading this blog.

  • Bart Hall (Kansas, USA)

    The most important median-term effect of an energy boom will be on the US current accounts deficit, roughly two-thirds of which derives from oil imports. Furthermore, abundant, cheap energy will engender a resurgence of American manufacturing (and export) such that current accounts will most probably be in significant surplus.

    Not only will the dollar be very strong, but the c/a surplus will enable both government and the private sector to pay down large chunks of outstanding debt.

    If you wish to find goofy oil reserves numbers, go no farther than OPEC in 1985-’86. Prices were terrible, and OPEC assigns quota based on reserves, which on average suddenly doubled with no geological basis whatever. The have remained unchanged for the last quarter century.

    It’s also important to remember that the current American energy boom is happening DESPITE the Obama administration’s intensive efforts to prevent it.

    DISCLOSURE: The Alberta oil patch paid for my M.Sc. in geology, and my first major project involved suggesting potential new areas in Saudi Arabia where the geology lent itself to possible petroleum deposits. Some people might call me a shill for the industry.

  • Hope you spend more time on the cost of production issue. As long as OPEC countries and its affiliates can produce a significant fraction of the world’s patroleum for just a few dollars a barrel they will not be replaced by oil from tar sands and shale, which costs around $40 a barrel. Abundant and cheap and abundant oil supplies are not the same thing in the marketplace.

    Now if we (OECD countries) slapped a $40 per barrel import tax on oil from rogue regimes that would be another matter. We could rely on our own sources of supply. China might not go along — but, then, we can also impose political tariffs on Chinese imports and exports (though export taxes from the US are unconstitutional I think — though probably not for political or military purposes, though I’m not an expert).

    Civilized countries need to leverage their collective economic might to protect and extend the values they believe in: constitutional democracy, civil rights, and the rule of law. We will not have this power forever. Don’t wast the opportunity.

  • Cheap and abundant, not just abundant, is the important point to keep in mind.

  • Kris

    Luke:

    Due to the new petro-discoveries, OPEC will have to put a ceiling on its prices, and the US and friends will get to enjoy imported oil at a low price while keeping their reserves intact. Your proposal throws away these advantages, and artificially increases the cost of energy for Americans, while keeping it low for the less civilized countries.

    Your proposal is practically akin to war: both sides will suffer. We would not just be using “this power,” we’d be expending it. I’m not convinced we wouldn’t be wasting it.

  • Atanu Maulik

    Biggest gainers : Canada, Israel, US
    Biggest losers: OPEC, Russia, those chasing the green unicorn.

    In short the biggest transfer of power from the thugs and criminals to the good guys since the fall of Berlin wall.

  • S.C. Schwarz

    if only you’re right. But I fear you greatly underestimate the power of the groups who face the biggest losses because of this development: the radical greens. Of course they won’t have the power to stop China, Israel and other rational countries but here in the US, and other western countries, they are far from beaten. Cheap, plentiful fossil fuels, and the prosperity they will bring, are anathema to the greens and they will fight it to the death.

  • Gene

    SC Schwartz, if what you’re talking about really is a “fight to the death,” I’m not concerned. The overlap between Greens and the well-armed is very, very small.

  • Kris – true, a soft war. We need to keep the pressure up — or, rather, put it back on — in the case of China, which is mainly what I care about (because they are so big, and because I like the Chinese people). The Party will not change without internal and external pressure.

  • Also Kris — on the shale oil thing. The investments required are so huge, and the time frame long (5 years or more) that the mere possibility, not the reality, of lower oil prices is enough to scare off developers. That has been going on for some years now. Tariffs would provide the necessary assurance. $40 a barrel sounds pretty good now.

  • Jeffrey Tarter

    In other (and fewer) words, “Drill, baby, drill.”

  • Randall

    So here is the problem. The marginal cost to produce oil in the Middle East is about $10-20/bbl. That is about $1.60-$3.20 per MCF of gas. The marginal cost to produce all of the above is about $90/bbl. There was no point in pulling the rug out from under solar/wind as they were always going to be a joke, but what happens when the price of oil drops to $20 per bbl? Same as the last time you saw the CO shale boom….You will say that their all-in cost is higher than that, and you are right. But, in a 5 year price war they will forget sunk costs. That is why the sound is a “boom”….Sorry, no eay answers here.

    Having said that, gas will put coal out of business in N. America. I assume that will go down as well politically as telling Iowa corn former that they can’t produce a dollar’sa worth of ethanol for $1.50?? The silver linning is we might get a 3-5 year bump(as happened to Reagan) during the price war.

  • Richard Marpet

    Don’t count out Russia. Per Forbes Mag, Bazhenov-Neocomian oil formation covers 80 times the land area of the Bakken in the US and Canada. http://nextbigfuture.com/2012/06/bazhenov-neocomian-oil-formation-covers.html

  • Alain

    There are some confusion in the comments with regard to shale oil. The stuff in Colorado is better described as oil shale in which the organic material held is kerogen. This does cost a lot to extract. The current boom in oil production in North Dakota and other places are from oil locked in a low porosity formation. This oil can be extracted using horizontal drilling and hydraulic fracturing. The oil in the Colorado formations cannot be extracted using this method, as of now. So there are two different types of oil formation that share the term shale oil in the news. They are very different in characteristics and in the extraction method required.

  • deepelemblues

    Oil is never going to be $20/barrel again until it is replaced as the main ingredient for fuel in engines of all kinds. As the “Third World” develops, it will increase demand for oil just as China and India have. This is already occurring.

    Thibaud, the usual thing that happens is oil reserve estimates go up, not down. Technology allows for better exploration and more extraction, and initial finds are usually revised upwards.

  • Randall … does that marginal cost include the cost of shipping that oil out of a “hot zone” like the Persian Gulf … including the increased prices that result from perceived instability of that mode of supply?

    Luke … Kris is right; we would be shooting ourselves in the foot by imposing tariffs. And China has 1.3 billion pressure points internally … as in 1.3 billion mouths to feed.

    IMO, if we simply continue to stand strong for rights-respecting governance (i.e. as Mr. Reagan did against the USSR), methinks that the Chinese leadership will come to realize that they are going to hit a point of diminishing returns if they continue with their authoritarian rule … and that a breakout from that will require that the people of China have the freedom to exercise personal initiative, with no threat of reprisal from the politically-connected … which requires nothing less than rights-respecting governance, similar to ours, to maintain.

    It may take more time for them to realize that, but they are not dummies … and once they realize that, WE had better be ready to compete with their resultant innovation and initiative, economically speaking — by encouraging our 300 million problem-solvers to stop relying on the Best and Brightest to solve their problems FOR them, and instead make sure they are free to exercise their own personal initiative. THAT right now, is our greatest competitive advantage.

  • ChrisGreen

    “Cheap and abundant, not just abundant, is the important point to keep in mind.” Right. Shale oil reserves will keep oil prices from skyrocketing for the next 20 years (good news!) but probably won’t bring them below $3.50 a gallon, maybe not even below $4.00 a gallon. That being said, in 10 or 15 years, solar power, along with several other energy sources, will become sufficiently cheap AND efficient so as to engender even greater energy dependence and downward pressure on oil prices. Thus, these new oil reserves buy the world time to further develope alternative sources like cheap nuclear, solar, wind, and LENR, without experiencing so called ‘Peak Oil’ or Peak Energy.

  • Frisco Kid

    Shale oil/natural gas production is just one aspect of the energy revolution. Fracking and other technology is dramatically increasing production from conventional oil fields. I work in the oil industry and none of the recoverable oil/natural gas estimates come close to what is really down there (what comes after “trillion”?).

  • APMSki

    To add to what thibaud say, that trillion barrels of shale oil is a really suspect number. It is conflating several different things. There is “shale oil” and there is “oil shale”. They are not the same. Shale oil and shale gas are mobile hydrocarbons associated with kerogen in shales. Kerogen is the organic matter that with heat and pressure can become oil and gas. Fracing (no one in the industry spells it with a ‘k’) allows the associated and adsorbed gases and liquids to flow out. The oil shales of the Rockies, in UT, CO and Wy are up to 20% kerogen. But have little associated producible oil and gas. The kerogen needs to be cooked to convert it to oil. This takes a lot of energy and despite Shell’s mad science project with hot helium injection and liquid nitrogen ice walls there is nothing remotely close to commercial production there. There may never be. Although with the potential bonanza people will keep trying. In Canada, they mine or steam liquify bitumen. It is not conventional oil and is not related to shale reserves at all. Bitumen is at the other end of the hydrocarbon life cycle. It is essentially over-mature oil.

  • Right Wing Nutter

    Gazprom won’t starve. But Russia’s oil and gas shale resources are at least 8x those of the U.S. and Canada combined. Russia’s ability to use those resources as leverage in Europe have been pushed back by about a century. It’s not impossible that Russia will become a liberal representative democracy in that time, but I wouldn’t bet large sums on it. So, methinks it would be prudent for the U.S., with an economy driven by abundant if not exactly cheap energy supplies, to press forward with replacements for those supplies.

    I suggest in no particular order:

    Thorium fueled reactors engineered to be fault, and even disaster tolerant.

    Further R&D on bio-fuels, spurred perhaps with an X-prize competition. The need isn’t critical yet, but military and civilian jets need kerosene and that’s one of the first things to get scarce when supplies get scarce.

    Encourage the shifting of ground transport to diesel & diesel/hybrid power. The technology is now available to build the things to burn cleanly, and diesel/kerosene type fuels seem to be easier to build from bio-fuel and the heavier crude that shale produces.

    Start/continue developing the technologies necessary to safely mine methane hydrates from the ocean bottom.

  • ChrisGreen

    Randall: At worst, OPEC will try to drive prices just below the profitability point for fracking. However, I’m honestly don’t thing that will happen (the forces of greed and disagreement with OPEC being strong). I simply don’t think leaders in countries like Venezuela have the power to push lower oil prices for an extended period (5-7 years) without getting in big trouble with electorate and domestic powers that be.

    However, even at price points that make current frackign technology unprofitable, there will still be incentive to develop more effecient solar and nuclear power. Evenetually, solar will be a big deal. As soon as panels can be produced cheaply, that operate at 30% efficiency, it will make economic sense for every Walmart, Target, mall, school and office building to put them on their roof. It will happen, but maybe not for 15 or 20 years. Also, the cost of fracking will almost certainly drop as it become more commoditized. I agree with you about natural gas in the US.

  • APMSki

    About that Russian shale oil…. The shale boom in the US and Canada is dependent on a massive well established infrastructure and a business environment used to drilling many low margin wells. Even the “remote” stuff in northern British Columbia is not really that far from Grande Prairie or Fort Saint John, where they have been drilling for 50 years.
    Northern Siberia, with a business based on fewer, high margin wells, with no little operators taking the exploration risks, is a whole different ball game.

  • sf24hr

    3 trillion barrels is 3 million times a million. Visualize 3 million dots in the USA and Canada, each dot containing a million barrels. The real losers being any living organism that likes clean air and clean water.

  • thibaud

    #24 ChrisGreen has it right.

    The shale boom is a temporary boost that buys us more time to transition to renewables.

    It’s nice to have, but it’s not the game-changer that the rather excitable voices here presume.

    Just as Britain’s temporary North Sea oil windfall did not reverse Britain’s trajectory, our shale windfall is not going to fundamentally change our position in the world or arrest longer-term trends.

  • Tortuga

    2 points: 1. All the old wells everywhere, can be re-drilled horizontally. Current recovery factors for oil fields around the world typically range between 10 and 60 percent and this is in mostly vertical wells.
    The greatest impediment to green energy is the lies of Government/UN/zealots. Nobody I know is AGAINST conservation “green energy”. Everybody I know does not appreciate the condescending lies or corruption.

  • deepelemblues

    Britain’s North Sea oil finds were several orders of magnitude smaller than what is recoverable from these new finds. So the minimizing doesn’t make such sense. The longer term trend is that you dancing around the peak-oil totem isn’t convincing.

  • If this eastern Mediterranean energy bonanza comes to fruition, I should think that another winner would be the United Kingdom due to its footholds on Cyprus and its control of the Straits of Gilbratar.

  • Wrong-o.
    The biggest loser is — drum roll — the American taxpayer.
    Quelle surprise.

  • Randall

    Chris,

    We all hope they live down to our expectations, but that would also assume long term strategy by the Chief UAV Operator in DC. Little or no sign of life there.

    Having said all of the above, this is a unmitigated good thing for the US. I just would not assume those friendly folks over near Abqaiq respond in a altruistic fashion.

  • stas peterson

    The ever resourceful Greens predict that eventually Solar and Wind will be economical. The only problem is that this is wrong. The limits for these intermittent sources, have already been reached.

    There are few real scientists or engineers in that Green movement. Except in the non-involved sense of desiring Clean Air and Water. The Union of Concerned Scientists that I helped found, fired it last genuine scientist long ago. The only engineers it has are “janitorial engineers” who swab the floors, and empty the wastebaskets from midnight to 5 AM.

    Anything they say is pure unadulterated PR scam, and Poli-Sci ideological bovine pasture patties. Their predictions are wishful thinking and green fantasy dreams with no reality, at all.

    Regarding the Water and Air, they have successfully suppressed the true State of affairs in America. Every city save two, Houston and Los Angeles, now has Air Quality meeting Air Quality Compliance rules of the EPA.

    Essentially every domestic body of Water now meets Water Quality Compliance Standards, as the days of burning Rivers and flowing open sewers is long gone.

    In simple words, after forty plus years of hard cleanup efforts, the Air and Waters are “Clean”, in the most industrialized, advanced, civilization in the World. Euro Socialist dweebs pontificate; but Americans have done the hard work and are just about finished,withthis multi-generational task.

    Our Public sanitation infrastructure has been expanded, and Industrial processes have been modified and cleansed. Our ICE engines for Transport have been cleaned to the point they are actually clean and better than a pure zero emission EV vehicle. Proving that coexistence of Nature and Civilization is both possible and accomplished,if the Will is there. As alwasy the leftist idealogues talka good show bu the worst pollution locals occur in Socialisit countries. Europe was embarassed that third World countries were actually imposing tougher emissiosn requirements than htey hasd andare finally startign to clean up. In 2016 they will install cleanliness requirements thay we Americans required in 1980,and developed the technology to accomplish same. Better late then Never.

    Oh sure there are still two American metro areas with much cleaner, but still endemic polluted Air, metropolitan Houston and Los Angeles; but even there the Air is much, much cleaner then it used to be back on the First Earth Day in 1970 and in prior decades.

    Occasionally, problems such as a local fire or flood or other accident temporarily reduce Air or Water Quality, somewhere. But these are now just localized, temporary and transient occurrences.

    As for CO2, the era of mass hallucination about global doom, spread by the Greens is coming to an end. Changes in CO2, a very minor trace gas, just does not have sufficient power to alter the climate except minimally; but what it can do is beneficially fertilize the Plants and mankinds crops,and the NASA satellites confirm that this is ocurring.

    In any case there are places where the Earth and its Flora and Fauna absorb more than ALL the CO2 emitted by Nature (97%) and Man (3%). Both the North and South American continents do so, with North America, the very largest Carbon Sink of the Planet, according to measurements peer reviewed and published in Science journals, by Scientific teams working at Princeton University. Not only absorbing all CO2 produced on those continents, but a lot blowing in on the prevailing winds from Asia.

    So the tripe propaganda that applies perhaps with some applicability to Eurasia, emanating from the Watermelon polemicists is invalid here. Their polemicists are too stupid to know that; or too cagey to admit that and ruin their money/power grabbing hoax.

    In any case vast new finds of hydrocarbons will more than provide the time to get to real limitless sources, like clean Fusion and or nuclear sources.

    Scientists working at ITER, the crude Prototype of a Commercial Fusion Reactor have issued a a startling proposal. ITER is the Last Fusion Physics experiment, and First Fusion Engineering design for a crude prototype of a commercial sized Fusion reactor.

    Scientific staff there are saying that work should begin on designing the First truly Commercial Fusion Reactor in 2017, for construction completion less than a decade later. That is less than 5 years from now, so certain of their success are they.

    Essentially the last of all the Fusion problems originally envisioned for ITER to solve, have now been met and solved, in piecemeal efforts at other little Tokomaks around the world, while ITER is being constructed.

    Meanwhile the comming Fusion reactors and French efforts and accomplishments at “Actinide Burning” technologies, have shown the way to eliminate all long lived, highly radioactive wastes from our present nuclear reactors, and not by simply burying them.

  • Kris

    [email protected]: Putting aside any other objections I might have, isn’t your proposal to “embargo” OPEC oil at cross-purposes with your proposal to “embargo” China? (For example, if we don’t buy OPEC oil, China will presumably be able to buy it for less.)

    Of course, this is mostly academic. While I sympathize with your intentions, I think that your proposal is quixotic; I don’t think there’s any chance that a significant enough “Coalition of the willing” will arise.

  • teapartydoc

    Wasn’t everyone talking about “peak oil” just a little while ago? I seem to remember a little conference held at MIT in 1977 where it was announced that oil production would begin to decline in 1985. What happened? These guys were energy geniuses. Weren’t they?

  • jim b

    i agree with your direction, but i wish you would distinguish between oil in tight underground shale rocks, ie the bakken in north dakota, and shale oil/kerogen found at or near the surface. the former can readily be produced with current technology and is making a difference, the latter still cannot be converted to oil without such high temperatures as to require more energy to produce than that contained in the finished oil product. the us has the most of the latter, but that isn’t really relevant today, maybe it will be in 20-30 years. that is what israel has as well, correct? if so then it isn’t really a very big deal today. i noticed this in your piece about israel the other day as well and would appreciate a separation and clarification when discussing it.

  • Xiaoding

    “The ever resourceful Greens predict that eventually Solar and Wind will be economical. The only problem is that this is wrong. The limits for these intermittent sources, have already been reached. ”

    Embarassing. Not true at all. Progress in solar is following Moore’s law. In ten years, it could provide the total energy requirment for the Us, it’s that good.

    Of course, there are roadblocks. But materials science is also advancing, at exponential rates. Don’t count solar out. What if we get room temp super conducting cables? (we will, soon) Strung around the world, there is no “off” to solar power anymore! Saudi Arabia will have another source of energy!

    Right Wing Nutter: well, bio-fuels are just a waste of time, IMO. Who needs it. The world is awash in oil, soon.

    But hey, you forgot something! All that gas and oil that we burn…is still here! It’s in the air!

    Two hundred nuclear reactors, would get it back! They would supply all the oil we need for cars, at least. We don’t need “new” oil in that case.

    Suprised to hear that nuclear fusion is…15 years or so in the future! Like it was in 1960.

  • Randall

    Yeah Xia…we’ll all have solar panels to fuel our Jetson cars. I guess that is why all the solar firms that Obama gave billions to are going belly up. Fusion is still *40* years away, as it was 40 years ago. Gas is the future fir the next 40 years and Solar will be at best a 5% solution for people who want to look trendy.

  • richard40

    The optimism in this article is only true if Obama loses. Otherwise his environmentalist fanatics will do their best to kill shale and tar sands exploration. They have already killed the pipeline that is neccesary to get this oil to the refineries.

  • John Schuh

    Talk of Peak Oil began in 1920 and did not end until the East Texas field came in in 1931. The field was big enough to fuel the American military from 1940-1950. The shift to Middle East oil afterwards changed things, especially after 1970, when OPEC came into its own. Nothing , but the new supplies, it seems, might also give a “push” that will last another forty years.

  • As the article begins “Over the past year we have been watching a geopolitical revolution…”

    Paragraph after paragraph promises huge new petroleum and gas developments.

    This is a phenomenon that really needs to be understood.

    The energy exploration and development process appears to be roaring ahead, if not on 90 dollar oil then for sure on 135 dollar oil. Oil shale is a high energy consumption petroleum.

    What economic or political strategies that the author would approve of can manage these developments to fit within the needed reduction of global CO2 output?

    The needed social solution is to restrain CO2 emission by civil ways. The big battle of the next 50 years is to level off and then reduct global CO2 output, while fighting off the ecological disaster that looms.

    And yes, at present positive profits do not match with positive environmental progress in reducing CO2 output.

  • Michael

    While these are great bridges they are only stop gaps as these are limited resources. What do you think of the potential of Thorium energy via LFTR? http://www.youtube.com/watch?v=EbucAwOT2Sc&feature=related

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