‘The fossil fuel age will be extended for decades. Unconventional oil and gas are at the beginning of a technological cycle that can last 60 years. They are really in their infancy.’
GOLDA MEIR, the former prime minister of Israel, used to tell a joke about how Moses must have made a wrong turn in the desert: “He dragged us 40 years through the desert to bring us to the one place in the Middle East where there was no oil.’ ”
As it turns out, Moses may have had it right all along. In the last couple of years, vast amounts of natural gas have been found deep under Israel’s Mediterranean waters, and studies have begun to test the feasibility of extracting synthetic oil from a large kerogen-rich rock field southwest of Jerusalem.
Israel’s swing of fate is just one of many big energy surprises developing as a new generation of unconventional fossil fuels take hold. From the high Arctic waters north of Norway to a shale field in Argentine Patagonia, from the oil sands of western Canada to deepwater oil prospects off the shores of Angola, giant new oil and gas fields are being mined, steamed and drilled with new technologies. Some of the reserves have been known to exist for decades but were inaccessible either economically or technologically.
Put together, these fuels should bring hundreds of billions of barrels of recoverable reserves to market in coming decades and shift geopolitical and economic calculations around the world. The new drilling boom is expected to diversify global sources away from the Middle East, just as the growth in consumption of fuels shifts from the United States and Europe to China, India and the rest of the developing world.
“Use whatever hackneyed phrase you want, like tectonic shift or game-changer,” said Edward L. Morse, global head of commodity research at Citigroup. “These sources will dramatically change the energy supply outlook, and there is little debate about that.”
This striking shift in energy started in the 1990s with the first deepwater wells in the Gulf of Mexico and Brazil, but it has taken off in the last decade as a result of declining conventional fields, climbing energy prices and swift technological change.
The United States may now have the means to reduce its half century of dependence on the Middle East. China and India may have the means to fuel the development of their growing middle classes. Japan and much of Europe may have the chance to reduce dependence on nuclear power. And, at least theoretically, poor African countries might be able to lift themselves out of poverty.
For consumers around the world, the new fuels should moderate future price increases.
But giving new life to fossil fuels is a devil’s bargain, probably making solutions to climate change, and the development of renewable energy, even more difficult. “Not only are you extending the fossil fuels era,” said Daniel Lashof, director of the climate program at the Natural Resources Defense Council, “but you are moving into fossil fuels that are dirtier and release more carbon pollution in the process of extracting and using them.”
James Burkhard, a managing director of the energy consulting firm IHS Cera, said that competition between fossil fuels and renewable energy development was driven by the price of oil and gas as well as by government policy.
“The unconventional boom will guarantee that the competition is strong for years to come,” Mr. Burkhard said. “If oil costs $200 a barrel, that would provide more headroom for electric vehicles. But if oil is at $90, alternative, renewable energy will need to compete better on an economic basis.”
The Deepwater Reserves
The future is now when it comes to deepwater offshore drilling, which has already measurably increased oil and gas supplies around the world.
In 2000, fewer than 20 vessels in the world could drill deepwater wells. Now there are nearly 200, and more almost every month. Global deepwater oil production leapt to roughly seven million barrels a day in the last 11 years, up from 1.5 million barrels, and now provides about 8 percent of the world’s oil supply. That production could double by 2020, according to experts.
Most of the drilling is in the Gulf of Mexico, off Brazil, Australia and India, and along the west coast of Africa. But only about 10 percent of the world’s deepwater oil and gas fields have been extensively explored and drilled.
In recent years, advances in computer processing power have allowed geologists to make sense of seismic data 15,000 feet or more below the ocean floor. Three-dimensional imaging and seismic mapping are now possible even below thick layers of salt, which used to blur views of untapped reservoirs. Superstrong alloys allow drill bits to go into hot, high-pressure fields.
Even with the advances, risks remain, as the BP Deepwater Horizon disaster last year demonstrated. Regulations became somewhat tougher worldwide, yet they caused little more than a pause in drilling. Even in the United States, drilling was almost back to pre-Horizon levels a year after the accident.
Cuba is planning to start drilling exploratory wells offshore at the end of the year, and Mexico is slowly moving toward deepwater drilling to revive its flagging oil industry. Drilling has begun in the deep waters off Ghana, and experts say they believe fertile fields exist all the way down the west coast of Africa to Namibia. The potential for new wealth could give Africa a better chance for development, although the history of Nigerian oil development is a cautionary tale of corruption, environmental degradation and strife.
Geologists say they believe the fields of West Africa fit like jigsaw puzzle pieces with prospective fields in South America, because the two continents were connected hundreds of millions of years ago. Total and Royal Dutch Shell recently made a major discovery along the coast of French Guiana, and neighboring Suriname is likely to become an important producer, too. Some analysts say they think more offshore fields may be discovered along the Brazilian coast and south to Argentina.
The coasts of East Africa are rich in gas, and China, Indonesia, Malaysia, Australia and the Philippines also have significant deepwater potential. And India’s deepwater prospects could provide much of its gas needs as its economy grows.
“We are just at the beginning of this story,” said William Colton, Exxon Mobil’s vice president for strategic planning. “It’s only likely we will find more deepwater resources.”
Oil sands have already transformed Canada into an energy superpower, and they have shifted American dependency from the nations of the Organization of the Petroleum Exporting Countries to a friendlier and more stable source. Oil sands have been around for decades, but they were too expensive to produce at large scale. Then rising oil prices altered the economics in their favor — attracting multibillion-dollar investments from international oil companies, including those in China.
Since 2000, production has expanded to more than 1.5 million barrels a day of synthetic oil from 600,000, making Canada’s oil sands the most important source of oil imported to the United States. (Canada also exports considerable conventional oil to the United States.)
“It’s one thing to find oil, and another thing to find oil in a very safe, secure place like Canada,” said Mr. Colton of Exxon Mobil. “From a U.S. energy security standpoint, it’s a very attractive proposition to U.S. consumers that we have this friend next door who has all these oil resources.”
Canadian oil sands production is expected to increase by as much as 200,000 barrels a day every year for the next two decades. Current estimates of how much is there already top Iraq’s total reserves, guaranteeing Canada’s place as a premier oil producer for many decades. IHS Cera projects $100 billion in investments in the oil sands over the next decade.
The only thing holding back production of Canada’s oil sands are environmental concerns. Much of the oil sands come from carving mining sites out of large sections of the boreal forest, an important depository for containing carbon and a breeding ground for many bird species. Refining of the oil sands, which requires the burning of natural gas, is more carbon-intensive than refining of most other crude oils, despite a 40 percent reduction since 1990 in carbon emissions for each barrel produced.
Technological improvements in recent years have streamlined the burdensome refining process for bitumen, the feedstock in synthetic oil production. Recovering reserves from deeper underground using steam injection, rather than mining, has reduced the footprint of operations and some environmental damage to the forests.
But opposition remains strong among American and Canadian environmentalists, who are fighting to stop pipelines to the United States and western Canadian ports. Without those pipelines, oil sands production capacity would most likely struggle to grow. That resistance has forced the oil companies to invest heavily in research to reduce the footprint of extraction and carbon emissions.
The Obama administration has been considering a proposed 1,711-mile, $7 billion pipeline to connect Canada’s oil sands production to terminals in Oklahoma and refineries on the Gulf Coast. The State Department recently gave the project a passing grade in an environmental impact statement, increasing the likelihood of approval. With the pipeline, Canada would move an additional 700,000 barrels a day.
The synthetic fuels now go almost entirely to the American and Canadian markets, but China and other Asian countries are increasingly interested in the oil sands. Chinese companies have invested more than $15 billion in Canadian oil sands projects over the last two years, even though there is not yet a way to get the fuel to China.
The Canadian company Enbridge is proposing a pipeline from Alberta to Kitimat, British Columbia, near the coast, where tankers could load for trips to Asia. Sinopec of China is helping to finance the $5.5 billion project. The pipeline could be completed by 2017 but faces various regulatory hurdles and opposition from Native Canadian groups.
China wants to obtain 15 billion to 20 billion additional barrels of foreign oil reserves over the next few years, so it also has its eyes on an enormous heavy oil field in the Orinoco Belt, in the northeast part of Venezuela. Production started in recent years, and several projects that have been announced could produce up to two million barrels a day by 2020.
The biggest wild card for the future of oil and gas may be shale and other tight rocks. Finding and producing hydrocarbons from these rocks has taken off in the United States with such velocity that it has already significantly altered government and corporate energy expectations. At the beginning of the last decade, the United States was believed to be burning quickly through its gas resources, and a flurry of construction began to build liquefied natural gas import terminals.
But a surge in production in shale fields across Pennsylvania, Texas, Louisiana and several other states over the last five years has produced such a glut that the price of natural gas has plummeted, and energy companies are proposing to convert their empty import terminals into export facilities.
The new drilling was made possible by a mixture of new and old technologies. Hydraulic fracturing, or fracking — the shooting of water, sand and chemicals at high pressures to fracture hard rock — has been done for decades. Now, combining that practice with horizontal drilling — directionally guiding a drill bit through a shale reservoir, as opposed to conventional vertical drilling — has taken advantage of fields that were practically useless in the past.
Shale gas production in the United States is more than five times as great now as in 2006, and the country surpassed Russia as the world’s leading gas producer in 2009.
Renewable energy will rise as a percentage of energy used, to 15 percent from 10 percent, but that will not provide for the growing demand.
“The fossil fuel age will be extended for decades,” said Ivan Sandrea, president of the Energy Intelligence Group, a research publisher. “Unconventional oil and gas are at the beginning of a technological cycle that can last 60 years. They are really in their infancy.”