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Energy Bridges


Energy bridges are new technologies and fuel sources that can help us make the transition from the oil age to a post-oil era. We cannot simply one day decide to end all fossil fuel use because the world as we know is hardwired to run on fossil fuels. Food is grown and transported with petroleum, while global shipping and air links enable international commerce to function very efficiently. Even the great technological revolution wrought by the Internet is underwritten by access to secure and affordable energy—much of it from fossil fuels.

Yet, we cannot sit by and passively watch global oil production peak and then inexorably decline. Oil price shocks triggered by shortages would cause massive economic and social dislocations and would be great tragedies for humanity.

To forestall these events, we must search for energy sources that can tide us over until we find new ways to heat our homes, power transportation systems, and run our factories. Our oil addiction cannot be broken overnight. We must wean ourselves off of oil to the extent possible with existing resources and new technologies for producing and using them.

Unconventional oil in the form of tar sands, bitumen deposits, and oil shale is one beam of the energy bridge. Liquefied natural gas forms another. The gas to liquids process by which natural gas is made into gasoline and diesel fuel (GTL) is the third girder of the energy bridge.

All of these technologies are currently economically competitive and can make a dent in global oil usage if brought on line immediately. The coming era of “peak oil” makes our ability to find new energy sources one of the major challenges humanity faces in the 21st century.

Peak Oil


“Peak oil” means that oil production rises rapidly, plateaus, and then drops off. What this means is that at some point between now and 2020, the world’s oil production will likely peak and then enter a slow, but relentless decline. Oil reserves will not dry up the day after production peaks, but current world production of 85 million barrels per day might total only 75 million barrels per day 10 years down the road.

If oil production fell by 10 million barrels per day over a 10-year period in the future, consumers could face $200/barrel oil and $6/gallon gasoline. Oil thirsty importers like the US and China might go to war for oil. The global transportation and shipping system would grind to a halt and along with it, the global economy.

For these reasons, all major energy consuming countries must aggressively pursue a strategy that uses energy bridges as a stepping-stone to new technologies and energy sources.


About Energy Bridges: Click on These Links


Tar Sands/Oil Shale

Gas-to-Liquids

Liquefied Natural Gas

Tar Sands/Oil Shale/Bitumen



With today’s high oil prices, a new player has come onto the world oil stage—“non-conventional oil.”

“Non-conventional oil” means bitumen deposits, oil shale, and tar sands that cannot be pumped the way conventional crude oil can. They must be either mined and processed, or heated underground and the oil pumped out. Bitumen consists of tar that is recovered by drilling wells in the deposit and injecting steam to liquefy the tarry bitumen so that it can be pumped to the surface. The process is technically difficult and more expensive than conventional crude oil production. Nonetheless, production costs for tar sands oil have fallen to around $15 per barrel, making them a viable fuel source at today’s $50+ per barrel prices. Similarly, Shell Oil has found a way to extract oil from oil shale that is competitive at world prices of $30/barrel.

Tar Sands

Why We Need Non-conventional Oil

World oil demand is growing strongly and by 2030, the International Energy Agency forecasts oil demand of up to 120 million barrels per day. Today, the world consumes about 85 million barrels per day and producers are just barely able to meet this demand. Three years ago, the OPEC countries had spare production capacity of 6 million barrels per day that could be brought online in times of emergency to keep prices down. This spare capacity is down to 2 million barrels per day—nearly all in Saudi Arabia--and in coming years demand growth rates will severely test producers’ capacity to bring enough new oil online.

Bringing new oil supplies from tar sands and oil shale online is a vital enterprise because the world’s remaining conventional crude oil reserves are estimated at roughly 1 trillion barrels (~32 years worth of supply at current oil consumption rates). Counting oil shale and oil sands, the US Department of Energy estimates that North America’s non-conventional oil reserves total nearly four trillion barrels.

Production from oil shale and tar sands will be critical in keeping oil prices in an affordable range and in keeping the world economy on track. The consequences of delayed non-conventional oil development could include oil supply shortfalls that could trigger global economic collapse, oil wars, and massive famines.

Key Differences Between Conventional and Non-conventional Oil (NCO)

 

Conventional Oil

NCO

Consists of low viscosity liquid oil

Takes the form of oil shale, tar sands, or underground bitumen reserves that are too thick to flow on their own

Many wells flow on their own, or otherwise are produced by pumping

Must be mined, or heated and then pumped

Wells often produce water that must be disposed of

Requires up to three barrels of water for every barrel of oil produced

Nearing “peak oil”

A largely untapped resource

High finding cost, low production cost

Low finding cost, high production cost

Conventional oil production quickly ramps up, “peaks” and then enters a prolonged period of decline

NCO production from oil shales or deep bitumen is steady, then rapidly ends

Reserves primarily outside North America

Main reserves in USA, Canada, Venezuela

The need for imported oil often influences American foreign policy

A heavier reliance on NCO could allow America to pursue a less constrained foreign policy in many parts of the world

Developing tar sands and oil shale is a way to reduce our oil imports and take a first step on the road to a new energy future.

 




























CARE’s Position

CARE supports the development of oil shale and tar sands as responsible energy sources. These raw fuels represent what is currently the best possible solution to the greatest challenge facing the world today. World oil consumption has been rapidly expanding and with the developing economies of India, China and other nations it is unlikely to level off, let alone slow down. At the same time we may be reaching the peak of world oil production. The largest oil fields are being depleted and new “elephant” fields are not being discovered. Ideally, mankind needs to transition to a primary transportation energy source that is not derived from fossil fuels. However, it is currently unclear what that resource may be. Whatever it is, oil shale and tar sands may become the energy bridge between the present and the future. Affordable transportation fuels are critically important to our economy, national security and perhaps even our survival. There are significant drawbacks to oil shale and tar sands (they require large amounts of natural gas, intense/heavy impacts to land surface, generate air pollution and large amounts of carbon dioxide that may contribute to global warming), however the inability to provide adequate transportation fuels to our nation would wreak unimaginable devastation on Americans as well as the environment.

How Non-Conventional Oil is Produced

Tar Sands

Tar sands consist of deposits of sand in which sand grains are covered with asphalt-like bitumen. It is thought to have formed in areas where deep crude oil deposits migrated upwards into shallow sandstone formations where the lighter crude oil components were then eaten by microorganisms, leaving the tarry bitumen behind. Tar sand lying near the surface is strip mined, crushed, and processed to separate the bitumen. The bitumen is then converted to synthetic crude oil by heating it under pressure, adding hydrogen, and removing sulfur and nitrogen.

Tar Sands being Mined

Tar sand that lies too deep to be strip-mined is captured by drilling wells into the deposit, injecting steam to liquefy the bitumen, and then pumping it to the surface, where it is used to make synthetic crude oil.

According to Mary O’Driscoll of Energy & Environment Publishing, one in every 8 liters of gasoline sold in Canada is made from tar sand derived synthetic crude oil.

Canada is the world leader in tar sands oil production and now produces nearly 1 million barrels per day from its mines. Canadian energy officials hope to be producing 3 million barrels per day from the tar sands by 2015—roughly the amount of crude oil produced today by Norway, the world’s third largest oil exporter. Canada’s proven tar sands reserves are 180 billion barrels, meaning that the country has the resource base to support its goal of tripling production in 10 years.

Oil Shale

Oil shale is shale rock laden with a waxy hydrocarbon known as kerogen. Outside of Australia, oil shale is not yet being developed on a large commercial scale but reserves in the Western Hemisphere are huge, with an estimated 800 billion barrels of recoverable shale oil in Wyoming, Colorado, and Utah alone.

Colorado and Utah experienced a brief oil shale boom during the last bout of high oil prices, but the market collapsed in 1982 when conventional oil prices fell, and thousands were laid off when companies’ shut down their oil shale projects. Now, most observers feel that the world oil market has fundamentally changed and that long-term prices will not fall below $40/barrel. The old oil shale extraction methods require prices of $70-95/barrel to be competitive, but a new process developed by Shell Oil is said to be profitable at prices of $30/barrel. As technology improves, the production cost may fall even further.

Oil Shale

Oil shale can be strip mined, crushed, and then heated in a furnace to drive out kerogen, which can then be collected and refined. This process is known as “retorting.” Or, the shale can retorted “in situ” in a process known as “in situ conversion.”

Here’s how it works. First, wells are drilled into the oil shale deposit. Second, to protect groundwater, wells are drilled around the perimeter of the site, water is injected, refrigerants are pumped through to freeze it, and presto, one has an impermeable, non-toxic barrier to anything from drilling that might contaminate groundwater. Third, heaters are lowered down the wells to cook the oil and natural gas out of the shale. Finally, oil and natural gas are pumped out until the site runs dry, then the operator plugs the wells and moves to the next site.

Shell Oil, which developed this process, says that its produced oil will be competitive at world oil prices of $30/barrel. The US Department of Energy believes that by 2020, the US can produce 2 million barrels per day of shale oil, with an ultimate long-term potential to produce up to 10 million barrels per day—nearly half of our current oil usage.

Read an artice about Shell's Mahogany Research Project in CARE's February 2007 Newsletter.

Facts

  • Non-conventional oil (NCO) takes 3 forms: extra heavy crude oil/bitumen, oil sands, and oil shale
  • The Green River Basin in Colorado, Wyoming, and Utah has oil shale deposits that contain up to 800 billion barrels of recoverable oil—3 times the size of Saudi Arabia’s oil reserves
  • This is enough oil to meet 25% of America’s current oil demand for 400 years to come
  • Venezuela also has large heavy oil reserves in the Orinoco Belt (300 billion barrels recoverable)
  • The Western Hemisphere alone contains more than 1 trillion barrels of recoverable unconventional oil. This is at least 35 years worth of oil at current global consumption rates.
  • The US DOE believes that Western oil shale deposits can ultimately support production of up to 10 million barrels per day

Pros

  • Most tar sands and oil shale reserves are found in the US and Canada
  • Most non-conventional oil production will come from stable countries that do not belong to a cartel. This will help stabilize world oil prices by removing the “fear premium” and the incentives it gives speculators.
  • Canada is a stable and friendly oil supplier
  • Non-conventional oil can reduce America’s overseas oil import dependence
  • Non-conventional oil from oil shale, bitumen, and tar sands is basically compatible with existing pipeline and refinery infrastructure
  • May turn back the clock on “Peak Oil”
  • oil sands and oil shale can be an “energy bridge” to the post-oil era

Cons

  • Production cannot be ramped up as quickly as conventional oil production can. There will be no “swing suppliers” that can turn the taps on and off in response to global market shocks. This may mean that consumers must maintain larger oil stockpiles—like the US Strategic Petroleum Reserve (SPR)
  • Possible high environmental impact of tar sands strip mining, potential environmental impact of oil shale development still not fully understood
  • Oil sands production requires huge amounts of increasingly valuable natural gas
  • Oil sands operations emit large amounts of carbon dioxide, which could constrain future tar sands development

The Future

Most oil market experts agree that we will soon enter an era of “peak oil” in which oil production worldwide will plateau and then inexorably decline. This does not mean that conventional oil supplies will run out tomorrow, but it does mean that energy consumers the world over will be forced to turn to replacement energy sources in coming decades. One of these will be non-conventional oil, with its technically challenging, but huge and largely untapped reserves.

Useful Websites




Petroleum Alchemy: Gas-to-Liquids


In the past, large gas deposits that were too far from markets to justify pipeline construction simply sat “stranded” after their discovery, sometimes for decades. Now, a process known as “gas to liquids” (GTL) can make this gas into gasoline, diesel, and motor oil.

How GTL is Made

Natural gas, steam, and oxygen are heated together, yielding synthesis gas (carbon monoxide and hydrogen). The synthesis gas is then sent to a reactor where it bubbles up through a catalyst and becomes a wax. Hydrogen is then added to the wax, turning it into gasoline, diesel fuel, or motor oil.

GTL production is based on an old idea. During World War II, Germany was cut off from overseas oil supplies that it relied upon to make gasoline and other fuels. In response, German chemists used the Fischer-Tropsch process to make fuels. Coal from Germany’s rich reserves was gasified, made into synthesis gas (a mixture of carbon monoxide and hydrogen), and then mixed with a catalyst, which created liquid fuel. South Africa employed a similar process to make motor fuels during the Apartheid era oil embargo.

Today, huge gas fields in remote places like Qatar and Iran are ideal candidates for GTL projects. Insert graphic

CARE's Position

CARE supports GTL as a responsible energy source that will allow energy companies to make stranded and otherwise worthless gas into badly needed motor fuels. GTL produced fuels cause less pollution than traditional fuels from crude oil. Moreover, mankind needs to transition to a primary transportation energy source that is not derived from fossil fuels. It is currently unclear what that resource may be. Whatever it is, GTL derived fuels may part of the energy bridge between the present and the future. Affordable transportation fuels are critically important to our economy, national security and perhaps even our survival. Using GTL-made fuels can help reduce global oil demand and can serve as an “energy bridge” as mankind works to move beyond oil and find new ways to power our transportation systems.

GTL Facts

  • GTL technology allows owners of remote gas reserves a way to bring their gas to market and increase the world energy supply
  • Huge gas deposits in the Middle East and Africa that lie far from markets are ideal candidates for GTL
  • Advances in GTL technology have made it competitive as long as oil prices stay above $20/barrel
  • The European Union’s campaign to tighten air quality standards will create high demand for low sulfur diesel, like that produced by GTL
  • Qatar and Iran have the world’s highest GTL potential due to their massive and remote gas fields
  • International energy companies in Qatar are planning GTL plants that can make 130,000 barrels per day of motor fuel each
  • Russia could use GTL to develop remote gas resources in Siberia
  • Russian use of GTL motor fuels could also decrease domestic oil demand and allow the country to export more oil
  • Alaska’s North Slope gas fields could be candidates for GTL development if pipeline plans fall through

GTL Pros

  • GTL produced diesel fuel is nearly sulfur free and has a higher cetane number than diesel from crude oil (this is an “octane number” for diesel fuel). This makes engines run more quietly and with less smoke.
  • GTL allows stranded, otherwise worthless gas to be turned into useful fuels and lubricants
  • GTL products are compatible with existing tankers, pipelines, and storage facilities
  • Engines running on GTL fuels pollute less
  • Greater global use of GTL-made gasoline and diesel could slow down oil demand

GTL Cons

  • GTL fuels will be imported and will increase our reliance on foreign energy
  • GTL plants are expensive to build—Sasol’s recently announced Oryx GTL plant in Qatar will cost $950 million to build
  • Most large gas deposits are found in unstable areas like the Middle East
  • GTL products will sell at a premium in the US because they will have to be transported from the Middle East and other distant areas
.

Useful GTL Links




Liquefied Natural Gas


Natural gas is a clean burning and valuable fuel, but it is very difficult to ship over long distances, because unlike crude oil, it cannot simply be pumped and loaded directly onto a tanker ship. Because of this, the world’s natural gas markets were isolated from one another for most of the past 100 years. Now the rise of LNG is creating a global market. Supplies from Russia, Qatar, and other distant gas producers can now be sold throughout the world, benefiting consumers everywhere.

Liquefied Natural Gas

Making LNG

Natural gas is liquefied and loaded onto specially designed tanker ships at a frigid 261 degrees below zero Fahrenheit. Once the LNG reaches the destination, it is offloaded as a liquid and then re-gasified and put into the gas buyer’s pipeline network.

From the 1960s until several years ago, LNG remained a specialty fuel that was sold only in 20 year or longer “take or pay” contracts in which utilities and other LNG users either took deliveries of LNG, or paid anyway.

Several years ago, the LNG market started to grow rapidly and began to incorporate elements of the global crude oil market—namely short term and spot sales that made it easier for customers to buy overseas gas on short notice. LNG’s growth is fueling the globalization of the natural gas market. One indicator of this is that a nuclear plant accident in Japan during the winter of 2002-03 drove up Japan’s short-term LNG demand and took enough gas off of the market that prices in the US hit unprecedented highs.

CARE's Position

CARE supports LNG as a responsible energy source that is clean and can help serve as an “energy bridge” to the post-oil era. As the age of “peak oil” approaches, we must look to new supplementary energy source like LNG to help fill the gap. LNG will not directly replace oil in the US, but in places like India and China where large amounts of oil are used to generate electricity and heat homes, LNG can replace oil and increase available world supplies.

Greater LNG use will increase the United States’ dependence on foreign countries, but at current gas demand growth rates, there are few alternatives. Plus, LNG can be sourced from countries like Trinidad and Russia that are more stable than the Middle East is. LNG imports will be part of a comprehensive gas supply package that includes conservation and greater US domestic gas drilling.

LNG Facts


  • LNG is simply natural gas (mostly methane) that has been liquefied so it can be transported by tanker ships
  • One LNG liquefaction facility, known as a “train” costs as much as $2 billion and can produce up to 7.8 million tons of LNG per year—3 of these trains could produce as much gas per year as the entire state of New Mexico!
  • LNG is tough to handle because it is a -261F liquid
  • LNG tankers are double hulled for safety and can cost as much as $170 million apiece
  • LNG re-gasification terminals can cost up to $2 billion each
  • Most LNG is still sold under long-term contracts and prices are determined by bilateral negotiations between buyers and sellers
  • Roughly 12% of the global LNG trade occurs on the “spot market” where cargoes are bought and sold like crude oil
  • In 2003, gas users imported 125 million tons of LNG, or roughly 1800 tankers worth
  • The US imported 23.5 million tons of LNG in 2003
  • Much of our LNG comes from Trinidad, Qatar, Algeria, and Nigeria
  • LNG presently accounts for about ¼ of the volume of gas traded internationally each year
  • Falling shipping costs and rising global gas demand are helping make LNG a true commodity, rather than a special fuel
  • Continued market growth may eventually make LNG into a widely traded global commodity like crude oil
  • However, LNG is mainly used for heating, power generation, and as a chemical feedstock It cannot be used to make liquid fuels unless the natural gas is run through the gas to liquids process
  • Global gas reserves are equivalent to more than 1 trillion barrels of oil
  • The LNG business has been remarkably safe. Over the past 45 years, there have been 33,000 LNG tanker voyages over 60 million miles of ocean, and not one single accident!

    LNG Pros
 
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