Petroleum: The Rise and Fall of Humanity


Big Sis modeling in … an oilfield. Our second tour of Bakken with our dad.

I’ve written on the petroleum issue before and as I learn more the worse it seems to look. Yes, there is good news about unconventional oil, like tight oil. And there are all kinds of alternative energies out there, too. But the choices for humanity are beginning to narrow to a point that open, frank discussion about what is going on is desperately needed.

First, I should mention something about the developments here in the States regarding new sources of oil that has everyone in the industry so excited. These sources are unconventional oil. There are two types of “unconventional” oil. First, there is what is called shale oil, AKA “tight oil”. This is really just conventional petroleum that happens to be found inside shale rock. The only reason it hasn’t already been exploited is because the drilling techniques needed to get to it are a bit more complicated than a simple, vertical bore shaft drilled in one spot in which the petroleum is “loose” enough to flow into the pipe on its own. With tight oil not only do you have to drill horizontally to exploit the relatively horizontal orientation of the shale rock, you have to “encourage” the oil to move into the bore pipe because it is tightly bound to the shale rock. This is done by a process that has come to be known as “fracking” in which explosive charges are placed in the bore pipe to perforate the casing and water is pumped in to crack the shale and create small paths within it and through which oil can flow into the bore pipe. Second, we have what is known as oil shale. Read that carefully, I just swapped the order of the words to get a new beast. And that’s why people get confused over these two types of resource. Their names are about as similar as one can get. But oil shale is a totally different thing. Here, the oil is not simply conventional oil tightly trapped in a rock. Here, the “oil” is not fully developed by nature and has not reached the final stage of its conversion into petroleum.  It is in an intermediate stage between fossil and true oil. This fluid is called “kerogen”. The problem with kerogen is that in order to complete the transition to petroleum, which you must do to make it a viable fuel source, requires considerable heating. If we just look at the energy equation it means that we are putting more energy into the production of oil from oil shale than we get out (with current techniques). And what many economists and optimists don’t seem to realize is that this problem is a physics problem, not just an economic one. In other words, there is no technology or economic model that will change this. Kerogen, in the form we know it, will never be economically viable in and of itself.

So-called “Peak Oil” tells us that, because petroleum is a finite resource, it must exhaust at some point in the future. Like so many academic statements, one can see that this is incontrovertible but as is often the case, the practical reality does not so easily admit of a simple application of a general principle to a specific problem. Such is the case with Peak Oil. People promoting this theory are effectively overgeneralizing to a specific set of circumstances and reaching erroneous conclusions. I’m going to try to sort out this mess here and explain what Peak Oil means for humanity in realistic, probable terms. First, I noted that the energy one puts into extracting petroleum must obviously not equal or exceed the energy they can extract from the recovered petroleum itself. Otherwise, there isn’t much point in extracting it. But from this point forward in the popular discussion of Peak Oil the conversation diverges into Wonderland. The crux of the problem, from what I can see, is that those that understand the geology and science of petroleum don’t understand economics and those that understand economics don’t understand the fundamentals of science. Add to that the inherent opaque nature of the petroleum industry and its methods and it is no wonder that there is immense confusion over this topic. Okay, so why is “Peak Oil” an “overgeneralization” of the human energy consumption problem? First, we need to point out that the idea that something is finite, and that one’s ability to extract it in situ will likely follow a bell curve in which the rate of recovery rises and then falls is an incredibly general proposition. And it’s that phrase rate of recovery that we need to understand better.

All finite things will tend to exhibit bell curve, or normalized behavior; that is, one’s extraction of them in situ (limiting the generality to resource exploitation for this discussion) will likely get faster in the beginning, then slow down as it depletes. But global Peak Oil is just one application of this broad generalization. Notice that an oil well, if all else remains the same, will also tend to extract petroleum at normalized rates, increasing sharply in the beginning and tapering as its reach into a reservoir diminishes. This has nothing to do with global peak oil. Likewise, a reservoir will, all else being equal, tend to follow a normalized pattern of extraction rates. This also has nothing to do with global peak oil. And please notice the qualifier “all else being equal”. Let me explain. The rate at which an oil well can extract oil from a reservoir, assuming the supply from the reservoir remains essentially constant (its really big), depends on numerous factors. The depth, diameter and bore length of the bore hole all affect that value. The fatter the pipe, the faster you can get petroleum out. Depth can affect pressure which will affect how fast you can pump it out. Indeed, even your pumping equipment can affect those rates. But things like the permeability of the rock also matter. I should point out that oil doesn’t usually sit in the ground in pools. Rather, it is “locked up” in the pores of rocks. Different rocks allow it to escape at different rates. Shale, for example, doesn’t give it up easily. So, that too, affects the rate of recovery. So, the reach an oil well has into a reservoir is a time dependent function that is highly localized and dependent on all the factors mentioned. Thus, it may be possible to drill another well nearby, but importantly, no less than some minimum distance away, to increase the flow rate. That minimum viable distance is determined also by those factors. Finally, for any given well, as the pressure begins to drop due to the peaking of that single well, not necessarily the entire reservoir, one can increase the internal pressure, forcing petroleum out faster, by boosting it with water. If that isn’t enough, you can inject gases under pressure to increase the flow rate.

In other words, the rate at which a single well delivers petroleum product is highly dependent on capital investment in the well. And producers have to consider how much they want to invest based on market conditions and overall performance of their overall recovery operations. Thus, the so-called “bell curve” becomes a joke. One can artificially shape this curve however they want depending on all the factors mentioned because, at the oil well level, the supply is halted only as a time dependent function of the presence of oil locally around the well bore. What this means is that, you can drain the region around the bore hole but over a very long time the rest of the reservoir will push oil back into that region and refill it. So, that also can be seen as a production rate variable. The reader should be able to clearly see now that the “peaking” of an oil rig is totally dependent on numerous variables, only one of which is the presence or availability of oil locally around the bore hole. Thus, simply yanking production rate figures for a well out and suggesting that it or its reservoir has hit a fundamental peaking of capacity based on those numbers is absurd. You cannot know that unless you have access to all the data and variables I’ve mentioned, and only then can you analyze the well and understand if an observed peaking is due to some natural, finite barrier or is rather due to the particulars of the well design and operation.

We can extend this discussion in scale and apply similar logic to the reservoir itself. We cannot know if a reservoir is reaching a true, finite and natural peak unless we know about each of those wells and, importantly, what percentage of the acreage from which a well is viable is actually covered by a well. So, in the same way, one cannot pluck data from a reservoir and conclude anything from that.

At the global level the same limitation applies. We need to know the true facts about each reservoir in order to reach any conclusions about:

  1. Actual, existing production capacity globally
  2. Total, defined reserves remaining

But can’t we see that if global well spudding is increasing and peak production in various countries has occurred that it must be occurring in the near term globally? Yes … unless we consider the powerful impact economics has on all this. The United States reached a peak around 1970 and its domestic production declined thereafter (until recently as shale oil has pushed production up considerably). But what we don’t know is why. Was it because the actual recoverable oil had diminished to something below one-half its original amount? Or was it because the investments necessary to continue producing the fields in the States were considered economically unsound given the global prices for petroleum at the time? Did petroleum companies just forego water and gas pressurization, increased drilling into existing reservoirs, etc. because it was cheaper to buy overseas? Did environmental regulation drive this? There is reason to believe that other factors were in fact at play because domestic production in the United States has risen again even if we control for shale oil production. And much of that is occurring from existing fields. But there’s more. Various agencies tasked with estimating reserves continually come up with reserve figures much, much higher than peak oil advocates claim. USGS and IEA, while they don’t agree on all the numbers, clearly state that conventional oil reserves in the United States are over 20 billion barrels. Where did that come from? It comes from the same fields that have always been producing petroleum in the United States. But for whatever economic reason, the additional investments in those wells simply have not been made. That is changing now. If the United States were to continue consuming at its present rate, and if that 20 billion barrels was the only source of oil for consumption in the States, it would last about 3 years. But since Canada supplies about ¼ of U.S consumption and shale oil is providing an ever increasing portion (quickly approaching ¼) that number is likely closer to 10 years.

Numbers for shale oil are about 20 years; that is, if all oil were drawn from those fields it would last about 20 years. This combined with the remaining conventional oil is 30 years, at least (and assuming Canada disappeared), of petroleum supply. But Canada’s reserves are yet larger and their consumption is an order of magnitude lower than that of the United States (their population is an order of magnitude lower than that of the U.S.). Thus, realistically, the U.S./Canada partnership, which is unlikely to be broken, will easily put the U.S. supply beyond 50 years. And that assumes that the middle east and everything else just vanishes. If we plug that back in its even longer. Let’s be clear, regardless of what’s going on around the globe, the U.S. and Canada are not going to trade their own oil away if it means their own consumption must drop. Nor would any other nation. Shale oil production in the United States is climbing meteorically, to about 4 million barrels a day in 2013. This is unheard of since less than 5 years ago it was virtually zero.

The more challenging oil shale; that is, kerogen bearing rock, is a U.S. reserve so large it is hard to calculate or predict where it might end. Needless to say, we have about 50 years to develop it and get it online. It seems unlikely that this goal will not be achieved, but I’ll discuss its challenges more later.

Okay, so is the problem solved? Can we all go home now? Not hardly. The same nuances mentioned earlier that better inform our discussion of peak oil also inform our understanding of the current petroleum situation, to include shale oil and oil shale options. Thus far, we’ve spoken only of production rates of petroleum. But here is the real, fundamental problem with petroleum: when it was first discovered and used on a wide commercial basis, beginning about 1905, it was so easy to obtain that in terms of energy it only cost us about 1 barrel of crude in power generation to draw and collect 100 barrels of crude for sale in the marketplace.  Some speak of this relation as the Energy Returned On Energy Invested, or EROEI ratio. I alluded to it above. It basically begins by noticing that if a fuel source is to be viable then we cannot expend more energy to get it than the energy it provides to us. In the case where those energies are equal, EROEI = 1. In the event that we consume more energy to get petroleum than the petroleum recovered provides, then the EROEI < 1. This is unsustainable also. Therefore, for petroleum, or any fuel, to be viable it must have an EROEI > 1. Having cleared that up, some confusion over how physics and economics overlaps on this matter has gushed out on the internet and elsewhere like water over Niagara Falls. Why? If we will recall, around 1905 the EROEI must have been 100, since for every 100 barrels of crude we could sell we expended 1 barrel’s worth in energy to get it out of the ground. The problem is that since that time the EROEI has dropped precipitously by about one order of magnitude. Thus, the global average EROEI is about 10 nowadays. But what this implies is what seems to be confusing people. Some think that if the ROEI gets any closer to 1 we’re doomed. Some have even said that you need an EROEI of 3 or 4 to make petroleum economically viable. This is not true and is based on certain assumptions that need not be true either. In order to be not only economically viable but economically explosive in its market power the ROEI simply needs to be greater than 1. That’s all. Let me explain.

There is this thing called “economics of scale”. To explain it’s relevance here, consider the following thought experiment. Suppose we discover a massive petroleum reserve in Colorado that contains some 2 trillion barrels of recoverable “oil”. At current U.S. consumption rates, if every drop of petroleum consumed in the U.S. were pulled from that one field, it would last 275 years. Ah, but you say, that reserve is kerogen. Kerogen is the play I referred to above where I pointed out that we had about 50 years to figure out a way to economically utilize it. This is because the other oil, so-called “tight oil”, or shale oil, will run out by then. But the big, big problem with kerogen is that lots of energy are needed to make petroleum out of it. Current retorts (heaters for heating kerogen) run at about 400 C and have an EROEI of about 3 to 4. Of course, this is first generation technology, but for the sake of discussion, let’s assume it is 3. For demonstration, we assume that the current, conventional EROEI on oil is about 10. How could kerogen possibly be cost effective? Economies of scale. Great, problem solved? Nope. Let me finish.

Let’s assume that, for the sake of discussion, we have an infrastructure that can begin producing petroleum at incredibly high rates. How is this? Kerogen is located only about 500 meters in the ground and can be manually extracted. This means that there are no “pressure curves” or constraints on how much can be removed how fast. It’s simply a matter of having sufficient resources to do the work. But more importantly, these rates can be achieved because, as one increases the rate of recovery, you are not fighting against a finite maximum lode (effectively) and the economics of scale work because it is one field, not several fields geographically separated over great distances. Thus, as petroleum flows out at rates far exceeding what was possible before, the price of that petroleum drops. And it keeps dropping as the market is flooded with petroleum. Imagine that before this operation commences oil costs 1 dollar a barrel (to make the math simpler). Let us say I have 100 dollars to spend on energy. So, I purchase 100 dollars worth of energy. But, it took 10 dollars worth of energy to get the oil I’m using as energy. So, my net return is 90 barrels of crude. Now, suppose after operations commence 100 dollars now buys 1000 barrels of crude. This means that I can net 900 barrels of crude for the same 100 dollars. My energy has gone up dramatically but my economic cost is constant. Of course, our EROEI is lower now, so we have to adjust and recalculate. 100 dollars buys 200 barrels of crude with an EROEI=3. Thus, for the same economic cost I have doubled my energy and have done so in the same amount of time because, by economy of scale, I can obtain that petroleum twice as fast as before. And I can achieve that production rate because I do not have to worry about running out for quite a while.

So, as with peak oil, simply blurting out EROEI doesn’t explain everything. You have to take all variables into account. Okay, will we finally get to the bad news? Yes, we are now ready to see the deeper problem and the key point so many are tragically missing. I somewhat glossed over economies of scale and production rates for kerogen and assumed that we actually had the ability to ramp up to that. In other words, we have to be able to invest in that massive infrastructure in Colorado to start this voracious beast up. Do we have what we need? Well, we have the petroleum in shale oil. But is that really all that matters? Of course not. We will not be able to reach that kind of production rate in kerogen to petroleum with excesses of tight oil alone. And this is where it gets interesting.

Those that study economics and petroleum often point out that the strength of an economy is largely dictated by the per capita energy per unit time that a country or region achieves. Energy per unit time is power and it is measured in watts. So, what they are saying is that the strength of an economy ultimately falls back to per capita power consumption. This is why climate change is so controversial overseas. Other countries know this and they see attempts by western, industrialized nations to limit CO2 emissions as nothing more than curbing per capita power consumption; thus derailing economies. For the western world, the association between per capita power consumption and CO2 is not nearly as strong, so it does not affect them as badly. But for countries still burning lots of coal and for countries without efficient cars and trucks, such cutbacks in CO2 would have drastic effects on their ability to industrialize. But for our discussion it is important for what it does not capture. To explain this, another example is in order. Consider a farmer living in the 1700s in North America. They plow fields using a mule and bottom plow. The per capita power consumption for the farmer is, say, x. Now, a farmer in North America in 2013 performs the same task using a very small, diesel powered tractor with plows, harrows and the like. In this case, the per capita power consumption is considerably higher and we’ll denote it y. Notice that over the years the transition from x to y is gradual as each new technology and piece of equipment increases the power consumption available to the operator. But why, exactly, does this seem to be correlated with overall quality of life? Why is it that better health, education and so on are so common as power consumption increases? The reason lies in the definition of energy and power. In physics the term “useful work” or “work done” in an “environment” is a term that refers to the effect, or result, of applying energy to a defined “environment”. Thus it is often called the negative of energy. Thus, when we apply energy to an environment we are dumping energy into that environment in some controlled, intelligent manner. In the case of the farmer example, the “environment” is the soil, or the Earth itself, which we transform intelligently into something favorable to plant growth. This takes lots of energy. In fact, the mule and plow ultimately expend exactly the same total energy as the tractor does. The difference however, is how fast it happens. The tractor does it orders of  magnitude faster. In other words, it is the power of the tractor over the mule that makes the difference. Thus, we can fundamentally improve our lives by intelligently applying power to satisfy a human need with speed, giving us the time to engage in other worthy tasks. We can use that time for leisure, education or other work related tasks. In the end, the quality of life improves.

Thus per capita power consumption is key to the advancement of humanity, period. We have no time to march in protest of an unjust ruler, time to educate our children, time to do other useful work such as plow our neighbors garden for them, or anything else, if we are captive to spending most of the hours of our lives slowly expending all the energy necessary for our survival. Power is freedom.

But power provides other improvements to quality of life indirectly as well. We can afford to have clean, running water because we had the power to dig enough water wells, we have the power to run the factories that make our pharmaceutical medicines which alleviate suffering, we have the power to build massive buildings called schools and universities in which our capacity to learn is enhanced, and on and on.

So, in the petroleum discussion, when we speak of “ramping up” to a new way of obtaining petroleum which requires more upfront energy than the old forms of petroleum, we are talking about a per capita power consumption problem. The shale oil can solve that for us. But what this discussion is missing is a key ingredient in this ramp up. Once again, we have to be careful not to overgeneralize. Generally speaking, this power statement is correct. But in reality, we have to consider something else. And that something else is the “environment” we just discussed. We can usually just ignore it because

The rate at which we can access the environment is assumed to be infinite, or, at minimum, proportionately greater than the rate at which we are expending energy into it.

This will not always be the case. Let me explain. In the case of the tractor, of course we have access to the ground because that is what we’re farming and there is no obvious constraint on how fast we can “get to it”. But what if we change the example a little. Suppose we now think of a factory that takes aluminum mined from the Earth and smelts it, producing ingots of aluminum that can then be shipped to buyers who may use it to build products that society needs. Well, the mines that extract the aluminum can only do so with finite speed. And if that resource is finite, and especially if it is rare or constrained in volume, the rate at which we can recover it is indeed constrained. Now, if I am a buyer of ingots and I make car parts out of the ingots, the rate at which I can make cars no longer depends solely on the power consumption available on my factory assembly line. Now, I have to consider how fast I can get ingots into the factory. This is a special case and we can see that generally this is not actually an issue. But to understand that we have to increase our altitude yet more over the forest to see the full lay of the land. Ultimately, all matter is energy. We should, in principle, be able to generate raw materials from energy alone if the technology for it exists. However, as a practical matter, we can’t do that. We depend on raw materials, aluminum being but one example, which come from the periodic table of the elements, plants and animals and minerals of the Earth. But the most constrained of all of them is the periodic table. As it turns out, petroleum is not our only problem and, not surprisingly, the crisis of the elements is of a very similar nature. It isn’t really that we are “running out”, it’s that the rate at which we can access them is slowing down while consumption goes up. And that’s the problem with petroleum, too. We have plenty of reserves, but our ability to access it fast enough is what is getting scary. Unfortunately for us, raw materials and rare Earth metals especially, are hard to find on the Earth’s surface. Almost all of the rare elements are deep within the Earth, much too far down to be accessible. Thus, our supply chain is constrained. This is why plastics have become so popular over the last three or four decades. In fact, some 90% of all manufacturing in the world now depends in some way on petroleum, ironically, because the raw materials we used to use are drying up. And the rate at which we can recycle it is not nearly fast enough.

So, the very same problem of production rates in petroleum exist for the elements and what we have not discussed is the world outside the United States. I have deliberately focused on the U.S. and Canada for a reason. The global situation beyond is dire. Why is this? Because, even if we solve the petroleum production rate problem in the United States, as I’ve suggested it will be,

It will be frustratingly constrained in its usefulness if dramatic improvements in the rate of production of elements of the periodic table are not found rapidly.

And that’s just the U.S. and Canada. The situation in the rest of the world is far, far worse. There is only one place where such elements in such large quantities can be found and exploited rapidly. And it is not in the ground, it is up, up in the sky. Near Earth asteroids are the only viable, natural source that can fuel the infrastructure creation necessary to drive the kerogen production needed. But said more fundamentally, if we don’t find a solution in the staged development of shale oil, then kerogen, coupled with massive increases in natural resources which increases in power consumption can take advantage of, humanity will die a slow, savage and brutal death.


What we really need here to express this economic situation is a new figure of merit that combines per capita power consumption with the rate at which we can access the raw materials that are being manipulated by any given power source. We cannot perform a meaningful study of this issue without it. Thus, for now, I will call it Q and it shall be defined on the basis of a per operator required figure (analogous to per capita but based on a per operator figure, a technologically determined value). And I shall define it as the product of a given power consumption and the raw materials in mass kg operated on by the power source per second time. Q would be calculated for each element, mineral or defined material it operates on using a subscript. So, for aluminum it would be:


And for any particular, defined economic enterprise the collection of such materials I will take to be a mean of all such Q and denote it:


Now, the Qm for the kerogen to crude conversion (retorting) must be greater than some minimum value that is actuarially sound and economically viable. For a sufficient value we can expect economic prosperity and for some lesser value we can expect a threshold of survival for humanity. That threshold is determined by the pre-existing Qc (Q based not on an operator but on true per capita basis) and the maximum range of variance an economy can withstand before becoming chaotic and unstable (meaning, before civilized society breaks down). So, what do we mean by death and destruction. Well, here’s the bad news.

The problem we are facing is a double faceted one.

We are seeing a reduction in global “production” rates for both energy and matter.

As populations increase this will get worse. Only Canada and the United States appear to be in a position to respond with the favorable geology and sufficient capital, technology and effort to compensate for dramatic losses in conventional oil production rates: if you are pumping water and gases into oil wells now to boost production the drop off after peak won’t be a smooth curve but will look more like a cliff. And now we can see why the Peak Oil concerns are real, but for the wrong reasons. The problem is that though the oil is there, it is costing more and more to get it out and the raw materials (capital) needed to invest in ever increasingly expensive recovery – economies of scale – are not forthcoming. The “cliff” is economic, not physical. Thus, even in the few countries where reserves are still quite large, economies of scale do not appear to be working precisely because of a lack of raw materials (capital) and, to some degree, energy. The divergent state of affairs between North America and everywhere else is due to several factors:

  1. Whatever the cause, conventional petroleum production rates are declining or are requiring greater and greater investment to keep up with prior production rates. This could be because of fundamental peaking or it could be because nominal investments needed to improve production rates have simply not been initiated until now.
  2. Tight oil is the only petroleum product that has been shown to be economically viable and that is not affected by the problem in 1.
  3. North America has by far the most favorable geology for shale, which is why it has been possible to start up tight oil production in Canada and the U.S.
  4. North America has the strongest economy for fueling the up-front, very high investment costs that a new infrastructure in tight oil will require
  5. The U.S. and Canada have been studying the local shale geology for over 30 years and have developed a sufficient knowledge to utilize it, to a degree far surpassing what has been done anywhere else.
  6. North America has the most advanced drilling technology for this purpose than any other locale can call upon or utilize.
  7. Despite the massive consumption in the United States, Canada and the U.S. appear to be at or near energy independence now, which means that instabilities around the globe will not likely have a negative impact on tight oil production as a result of its economic shock (at least not directly).

The biggest question for the United States is this. What are you going to do about raw materials? The good fortune found in tight oil will avail nothing if the United States doesn’t also dramatically increase the rate at which it can “produce” raw materials, particularly elements of the periodic table. The only way to do this is to create a crewed space flight infrastructure whose purpose is to collect these materials from asteroids, where they appear in amounts astronomically greater than anything found on Earth. If the United States fails to do this, it and Canada will go the way of the rest of Humanity. To explain, it may survive the tight oil period. The problem won’t present until the switch to kerogen is attempted in some 30 or more years. But it would take 30 years to develop such a space flight infrastructure. There is no room for gaps. Because of kerogen’s poor EROEI, it will absolutely depend on higher production rates of raw materials; i.e. increased flow of capital.

Of course, at some point alternative energy will have to be developed and the entire primary mover infrastructure will have to be updated. That is really the end goal. But this is no small task. It will cost trillions and will take decades to convert humanity over to a fully electric infrastructure. That is one of the key requirements for comprehensive conversion to alternative energies. And alack, we do not have the raw materials on Earth to build enough batteries for all of it. Thus, once again, the asteroids loom as our only hope. When and if we achieve an energy infrastructure that does not include fossil fuels we will have taken a key step in our development. At that point, for the first time, humanity will be progressing using the fundamental physical principles common throughout the universe and not specific to Earth. It will be a seminal transition.

What does this mean? I had written a few paragraphs on that question but, realizing how depressing it all is, I leave it at this. USG needs to start developing this space infrastructure yesterday and they need to keep hammering away at kerogen. I hope I’m wrong about this.

– kk


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