Editorial Comment

	Vol. 226 No. 11
PERRY A. FISCHER, EDITOR

It depends on what you call “oil.” Another title this could have is, Oil just peaked and no one cared. In most of the doomsday forecasts that the “peak” cottage industry puts out, one thing that is sometimes lost is that innocuous adjective, conventional. It’s always conventional oil that is about to peak. The term unconventional doesn’t even have a good definition, but it clearly has something to do with profitability. With rising prices, the line of economical production shifts, and the gap between conventional and unconventional oil resources narrows. Most often, conventional oil refers to crude that is above 20° API gravity, and relatively cheap to produce. Everything else that refers to liquid hydrocarbons is, therefore, unconventional “oil.”

I took some reasonable numbers from the governmental agencies EIA and IEA, and created the graph on this page. While a bit contrived, and certainly not a forecast (the dates were intentionally left off), it illustrates a point that is not farfetched. If, as Professor Ken Deffeyes has stated, conventional oil production does peak within three weeks of Thanksgiving Day, November 2005, it is possible that unconventional oil could fill the gap well into the future.

Also, I had to cut off the graph’s right side so as not to give the impression that a peak will never come – it will. I just don’t know when. When it comes to prediction, I prefer to foresee what happened yesterday. Cutting off the right side also prevents having to show that, when a permanent supply shortfall finally happens, it will likely decline at least 1 – 2% per year, while world demand will increase by a similar amount. The growing 2 – 4% wedge will eventually get too large for anyone to believe.

However, it is worth noting that the range of estimates to peak has narrowed over the last decade or so, with the perennial pessimists forecasting a range between next week and five years hence, and the optimists at the EIA and IEA saying that it will be in the 2016 to 2037 range, depending on assumptions of demand growth and the ultimate resource size. Thus, an agreement, or what passes for an agreement, is forming, that a permanent shortfall will occur in the next 11 to 32 years.

We are entering an age where the transmutation of energy from one form to another will become much more common, even strategic. Unconventional liquid hydrocarbons could plausibly contribute 25 million barrels a day within 30 years. A more complete list of unconventional liquids includes GTL-diesel, GTL-DME, starch- and cellulose-based ethanol, tar sands, heavy and extra heavy oils, bitumen, liquids from coal, NGLs and condensate, and refinery gain, which is essentially natural gas that’s had its hydrogen robbed in order to upgrade poor quality oils.

So what if conventional oil peaks? As long as unconventional liquid hydrocarbons prolong it.

DME (dimethyl ether) is akin to LPG, an energy rich, environmentally friendly liquid gas fuel, suitable for conventional transportation, fuel cells and gas turbines. It can be made from biomass, coal, natural gas – anything that can be made into methanol. Like hydrogen, it’s an energy carrier, and is transportable on LPG tankers. In the past five years, there have been a few pilot and small commercial plants built (about 2.5 million tons/year) and the world’s largest fuel-use DME (110,000 tons/year) plant is being built in China.

GTL from natural gas or coal can probably produce a million barrels a day of diesel within 10 to 15 years. In general, all gas-to-liquids technologies are increasingly attractive, because there’s no shortage of natural gas on the planet, with about 7,000 Tcf of proven reserves, and at least 2,000 Tcf that is undiscovered – and likely more. Moreover, globally, we are only using it at about 100 Tcf a year; so, the math would say that there’s a lot more gas left in the world than oil.

IEA forecasts that oil demand will grow 50% by 2030. IEA also forecasts that unconventional oil (oil sands, extra-heavy oil) will contribute 8 million bpd to world supply within 25 years. And of course, there’s the mother of all wild cards – shale oil, with its trillion barrel potential. Shell says it’ll make a decision within five years as to whether their development of an in situ shale oil process is commercial.

Reasonable assumptions of demand and supply growth lead to another awkward agreement with the peakers. Since it’s likely to take 10 to 20 years to restore a shortfall on a continuing basis, waiting until the peak is obviously too great a risk. Almost by definition, we won’t see the peak until it’s behind us. The time to form a workable strategy, complete with goals, is now. Such a strategy should be based on existing technologies, and optimistic, but rational, logical extensions of existing technologies. And it should be a plan that would carry us forward for at least a century, if not more.

As I look at worldwide projections for the next 100 years of: population, electricity demand, liquid fuels, transportation and so on – no matter how conservative – the numbers get very large. And going forward from there it’s just plain mind-boggling. The risks of delay are great, and the remedies slow and difficult, more so in the midst of a growing, permanent energy shortfall. Market forces? Sure, they’ll help, quite possibly, amazingly so. But they only react to the present and are not known for their ability to plan long term. Yes, it’s possible that, left only to market forces, unconventional liquid hydrocarbons from all sources will prolong a peak. But I wouldn’t bet on it. Rather, we should plan on making them part of our energy future.