Checking In On Peak Oil

In last week’s column, The Case of the Missing Propane, I explained how the widespread use of hydraulic fracturing (fracking) of shale oil deposits since 2008 has led to a 30% increase in the production of crude petroleum in the United States. While that statistic makes for snappy headlines, it is not particularly meaningful to the overall world oil supply or the phenomenon known as Peak Oil.

If you are not familiar with Peak Oil, I published a column in June of 2011 called Peak Oil in Five Paragraphs or Less. Here are the key points:

• Peak Oil refers to the time at which we reach the global maximum rate of oil production, which is followed by decades of declining rates of production.
• Due to oil’s pivotal role as a transportation fuel and (as I explained in Everything Comes from Oil) the key raw material for most consumer goods, the global economy can only grow if oil supply continues to grow.
• In order to keep producing more and more oil, you must keep discovering more and more and more. This is not possible. Eventually you are exhausting oil fields at a rate faster than the new ones can be discovered.
• The global peak for conventional oil sources occurred in approximately 2005, requiring us to turn to unconventional sources such as shale oil and oil sands. These sources are expensive to exploit and will not last for very long.
• The economic disruptions cause by the impending oil supply constraints will be very challenging for the global community.

The graph below was the key feature of Peak Oil in Five Paragraphs or Less. This graph is pivotal to understanding both the history and economics of the last century as well as the challenges coming in the next; everyone should be familiar with it. Its peaks and valleys tell stories as varied and interesting as the growth of suburbia in the U.S. and the role of Saudi Arabia in the post World War II era. But I never see this graph in the papers. It’s not hard to understand. As you can see from the bars, the peak year for global oil discovery occurred in 1965, the year before I was born, and has been generally declining ever since. Due to extraordinary efforts by the oil companies, the rate of production has yet to start declining, but as those old fields continue to be exhausted, it will.


Beginning in 2007, you see a small, but temporary, increase in “discoveries” which corresponds to shale oils such as the Bakken Shale in North Dakota. I put discoveries in quotations because shale oil deposits have been known about for decades but were simply not counted as petroleum reserves due to their low quality. The oil sands in Alberta, for which the Keystone XL pipeline is intended, fall into this same low-grade category.

Before I show you some additional graphs (I love graphs), we need a brief aside on definitions and sources. The data I use below is from the U.S. Energy Information Administration (EIA) and is, therefore, reliable for past data. Different sources define “oil” differently, which can cause confusion. Some, such as this column, restrict the definition of oil to crude petroleum – think gushers from old movies. Other sources add in liquids that are collected during natural gas refining – we discussed those last week – as well as biofuels, resulting in larger totals.

The graph below shows U.S. crude petroleum production in millions of barrels a day since 1980. From 1980 through 2008, there was a steady decline from 9 million to 5 million barrels a day. In 2008, fracking of shale oil began in earnest, which has increased U.S. petroleum production from a low of 5 million to 6.6 million barrels a day, an increase of 30%.

USA Oil Production

Extracting petroleum from shale formations is an expensive business. After you go through all the effort and expense to drill downward and then horizontally, and break up the rock below with high pressure fluids (fracking), the production from the well falls off by an average of 65% during the first year. Therefore, in order to keep production going, you’ve got to keep drilling and drilling and drilling. In 2011, 16,000 fracking wells were drilled in the U.S. In 2012, it was 19,000.

While doing the research for this column, I decided to have a look at the Bakken Shale Field formation, which spans the North Dakota-Montana border just south of Canada, on Google Earth. I could not get a nice looking picture for you, but it is somewhat fascinating to see. If you use the satellite map feature, follow the existing rural roads, then look for secondary dirt roads which lead to dirt rectangles. Each rectangle will contain a well with a pump on top, four tanks for collecting the oil, and some other equipment. You generally will not find any people or vehicles, because these units run automatically. As you pan around, you can find them by the hundreds.

The increase in petroleum production in the U.S. has not provided any meaningful relief from high gasoline prices, which remain steadfastly above $3.00 per gallon. There are two main reasons for this: petroleum is a global commodity (more on that below) and fracking is an expensive technique. Consider that in 2004, oil sold for about $40 per barrel. The break-even price for a barrel of oil produced from fracking is $80.

The graph below shows world crude petroleum production along with the same data I showed for the U.S. in the previous graph. As you can see, petroleum production in the U.S. is only a small fraction of the global total. Therefore, the 30% increase in U.S. production has only increased the global supply by two percent. A two percent increase in global supply, especially an expensive supply, is not sufficient to result in a reduction in U.S. fuel prices.

US and World Oil Production

So where does this leave us? Overall global supply of petroleum is being maintained near 76 million barrels a day based on the extraordinary efforts to extract unconventional oils. Sometime between now and 2025, the supply will begin to decline and cause social and economic dislocations. As we continue to exploit the unconventional sources during this time, carbon dioxide concentration in the atmosphere will grow from 400 to 450 parts per million, causing even more dramatic changes in our weather patterns and challenging our ability produce enough food for eight billion people. Dealing with these parallel challenges will be the defining features of the 21 century.

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The Case of the Missing Propane

Over the past few weeks, I have seen many stories about propane shortages in the United States. As a result of these shortages, prices for propane have nearly doubled from around $2.20 per gallon at the end of last year to over $4.00 per gallon this week. This situation struck me as quite odd. We should be nearly drowning in propane at the moment. So I decided to try to figure out what was going on.

As usual, let’s start with the background. Propane is a small, simple hydrocarbon with the chemical formula C3H8. At normal temperatures and pressures, propane is a gas. By applying a modest amount of pressure you can induce it to liquefy, which is what comes in the propane tank you may be using for the grill on the back porch.

Three quarters of propane production in the U.S. comes from the refining of natural gas. The primary component of natural gas is methane (CH4). Mixed in with the methane are larger hydrocarbons such as ethane (C2H6), propane and butane (C4H10). Before natural gas can be put through a pipeline (the only economical way that it can be transported long distances), most of the propane and butane must be removed, thus resulting in most of our supply of propane and butane. Butane is what is used in most cigarette lighters.

The other 25% of propane production in the U.S. comes from petroleum refining. In order to make fuels such as gasoline and diesel from crude petroleum, there is a processing step called cracking. Cracking is just what it sounds like, the breaking up of larger hydrocarbon molecules into smaller ones. Some of these smaller molecules are propane, resulting in the rest of our propane supply.

Propane is used almost exclusively as a fuel for heating. The breakdown of propane consumption in the U.S. is shown below:

Industrial heating 50%
Residential/recreational heating 42%
Agricultural (e.g. drying grain) 7%
Transportation 1%

Due to the implementation of hydraulic fracturing (“fracking”) as a drilling technology, production rates of natural gas and petroleum in the U.S. have both increased approximately 15-20% since 2008. Therefore, production of propane, which is recovered from both of these sources, has also increased by this amount.

The increase in supply has resulted in a dramatic decrease in the price of refined natural gas, which has inspired power companies all across the country to convert from coal to natural gas for fuel. So I set about trying to determine how there could be a shortage of propane and a surplus of refined natural gas at the same time.

I checked U.S. propane consumption to see if increases in demand were outpacing the large increase in supply. The U.S. Energy Information Administration data shows that propane consumption in both October and November of 2013 was slightly above normal while use in December had fallen back to within the norm. This small increase in demand last fall could have put some strain on supply, but not enough to explain the dramatic price spikes on its own.

Then the likely answer occurred to me. Since natural gas can only be transported in an economically feasible manner via pipeline, nearly all of U.S. production is consumed domestically. Propane gas can easily and economically be compressed to a liquid. Liquids are easy to transport and, thus, easy to export.

That turned out to be the answer to the mystery. In 2008, only 5% of U.S propane production was exported. By 2013, driven in large part by high demand in Asia, the amount exported increased to 20%!

Let’s work the numbers. In 2008, the U.S. produced an average of 1.8 million barrels a day of propane, exporting 0.1 million barrels and leaving 1.7 million for domestic use. By 2013, production had increased 20% to 2.16 million barrels a day, but now 0.43 million of these were exported, leaving just 1.73 million for domestic use. As you can see, essentially all of the production increase since 2008 has been allocated to export.

The consumption of all fuels in the U.S. increased along with the growth of both population and the economy. Therefore, while the 1.7 million barrels a day of propane met demand in 2008 – a year with a weak economy – the 1.73 million barrels a day allocated to domestic use were just barely enough for 2013. As a result, even the minor increase in demand which occurred last fall was enough to cause a large spike in price.

This chain of events which led to the propane shortage this winter warrants some additional reflection and analysis. Consider the following timeline:

• In 2004-2005, natural gas production in the U.S. from traditional extraction technologies was not keeping pace with the demand and resulting in dramatic price increases.
• The high price for natural gas was a primary driver in the dramatic expansion of fracking in the U.S., which significantly increased the supply of natural gas and, thereby, caused a drop in its price.
• Fracking also brought about a large increase in propane supply.
• Because drilling companies are compelled to maximize near-term shareholder return, the surplus propane is being exported.
• Ensuring that U.S. citizens benefit from the increased propane supply in the form of lower prices stemming from surplus domestic supply would require the type of government regulation of the energy sector which is vociferously opposed by Republicans.
• Most homes which use propane for home heating and kitchen cooking, the people who are most harmed by the price increases, are located in rural areas.
• Rural areas tend to steadfastly vote Republican.

When the Republican politicians who represent those harmed by these price increases are pressed to provide an explanation for why their constituents’ heating bills have doubled, they tend to offer a list of talking points about excess government regulation. They offer the libertarian vision that if only the oil companies were free of government constraints, all would be well. As I laid out for you above, this explanation is demonstrably false.

When I ran unsuccessfully for a seat on the CHCCS Board of Education in 2005, I campaigned on my commitment to data-based decision making. That phrase lacks “zing,” which may explain why engineers make for mediocre political candidates. To me, though, the current domestic propane price increase is a perfect example of the need for data-based governance. The data tells us that the propane shortage in the U.S. is the result of the rise in exports. Our lawmakers should make policy based on this data to ensure that American citizens reap the benefits of increased American energy production. For those of you I confused back in 2005, this is what I meant.

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2014 Predictions Part II: The Negative

Last week I set out my predictions for five positive science and technology news stories that I am expecting in 2014. This week I’ve got predictions for four negative ones. As with last week, each prediction begins with an imaginary headline.

1. Hurricane Cristobal to be Second Category 4 Storm to Hit Pensacola this Month

Every year tropical cyclones form in the Atlantic and make their way towards the southeastern United States. Over the past century, an average of six strong storms – categories 3, 4, and 5 – made landfall each decade. Just as simple statistics govern how often a single person will be struck twice by lightning, they also tell us that one of these years the same city on our coastline will be devastated by a category 3+ storm more than once. I predict that 2014 will be the year that Pensacola will be the city.

This sequence of events will convince all but the most ardent of skeptics that Global Warming is actually occurring. This will be particularly ironic since the events in question will not be related to climate change but are the simple outcome of math.

2. Food Riots in Liberia Enter their Third Week

The United Nations estimates that one in eight people around the globe suffers from chronic undernourishment. A disproportionate number of these hungry people live in under-developed countries. Human beings have a remarkable capacity to soldier on in difficult times, but watching one’s children go hungry often stirs strong responses. As such, hunger and increased food prices are at the top of the list of the most common catalysts for civil unrest throughout history. I think 2014 will bring such unrest in Liberia.

The recent sad arc of Liberian history began with food riots in 1980 which then led to a series of civil wars and upheavals, culminating in the brutal regime of Charles Taylor, which ended in 2003. Things looked encouraging in 2005 when Ellen Johnson-Sirleaf was elected as the first ever female president in Africa. She continues to hold office and was awarded the Noble Peace Price in 2011.

Even considering the best efforts of President Johnson-Sirleaf, I see trouble for Liberia on the food security horizon. Liberia, despite its temperate climate, imports over 90% of its rice, a staple food for Liberians, particularly the poor. Part of the reason for this is that a staggering 57% percent of Liberia’s arable land has been leased to foreign countries and companies using an instrument called a concession (I am planning a fuller treatment of this phenomenon in a separate column). These factors combine to make Liberia extremely vulnerable to disruptions in food imports. When this next occurs (and, 2014 or not, it will), I suspect the Liberians will not sit idly by and watch their children go hungry while prime farmland in their country has been leased to foreign governments to grow oil palm for biodiesel.

3. Chicken Run

When you buy chicken at the grocery store, it is highly likely that it contains harmful bacteria. Recent studies have shown that 97% of chicken is infected with some combination of E. coli, salmonella, campylobacter, staphylococcus and other potentially harmful bacteria. To make matters worse, nearly half of the chicken in the store is tainted with bacteria that have some degree of resistance to antibiotics. The percentage of grocery store chicken containing drug resistant bacteria has been increasing dramatically over the last several years. As more people become aware of how pervasive this problem is, I expect chicken sales to drop during 2014.

4. Fracking, Not in Lee County but in the Ukraine
While local concerns about fracking are focused on the undue influence of the oil and gas industry on the ongoing formulation of regulations in Raleigh and the threat to water quality in Lee and Moore counties, we should also be paying attention to events in the Ukraine and understand how fracking relates to the recent and massive political protests which occurred there. Its strategic position between the European Union and the Russian Federation is at the root of most issues in the Ukraine. During 2013, the Ukrainian government was moving towards greater cooperation with Western Europe, which provoked a reaction from the Russians concerned about the potential loss of trade revenues and international influence. Since most of Ukraine’s natural gas supply comes from Russia, when the Russians wanted to stop Ukrainian-European cooperation, it threatened to shut off the gas.

Seeing an opportunity in this dispute, Chevron Corporation has approached the government of the Ukraine with a proposal to start fracking operations there in order to reduce their dependence on Mother Russia. I anticipate that the Ukrainians will agree.

As I have written about many times, any hope of maintaining a climate which approximates what we have seen these last 15,000 years will require keeping the carbon dioxide concentration in the atmosphere at less than 450 parts per million. To do so will require leaving large portions of current, known fossil fuel reserves it the ground. Fracking in the Ukraine with be yet another step in the wrong direction and it will be a big one. Other nations will follow. In fact, as I was working on the final edits on this column today, I read a report on French oil giant Total proposing fracking in the United Kingdom. May our children forgive us.

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NC Lawmakers Hone Rules For Gas, Oil Drilling

RALEIGH – North Carolina lawmakers are honing rules that would govern underground natural gas drilling and encourage offshore oil drilling.

The Senate gave final approval Tuesday to legislation intended to spur the state’s energy. It now goes to Gov. Pat McCrory.

The measure removes an earlier idea to begin issuing permits in March 2015 for underground gas drilling using a method called hydraulic fracturing, or fracking. The existing law directs state agencies to craft rules for oil and gas exploration by October 2014 and requires the legislature to act before issuing any permits.

The legislation also directs McCrory to negotiate an offshore energy alliance with the governors of South Carolina and Virginia.

Republican Rep. Mike Stone of Sanford says lawmakers want to tell the energy industry that North Carolina welcomes drilling.

All Opinions Welcome In Fracking Discussion In Hillsborough

CHAPEL HILL – The community has a chance Tuesday night to participate in a discussion about the controversial subject of fracking in North Carolina. It’s happening at 7:00 p.m. at the Schley Grange Hall in Hillsborough.

Bonnie Hauser is the president Orange County Voice, the group that organized the discussion.

“The event is a chance for people to get just the facts,” Hauser said.

Last year, hydraulic fracturing—otherwise known as “fracking”— was formally legalized in the state. Since then, the N.C. Mining & Energy Commission has been charged with creating regulations for the procedure.

Dr. Rob Jackson of Duke University will lead the discussion. He’s a professor of Global Environmental Health and the director of the Duke Center for Global Change.

“Dr. Jackson and his group have been studying fracking sites all over the country, working with the US Geological Survey,” Hauser said. “They have the facts and they can tell us what has really been going on. It’s a chance for people who might not be engaged in the discussion– to engage.”

Hauser says the goal is not to tell people what their opinion on fracking should be—but rather to explain the basics of the complex topic.

“It’s easy for us all to jump on the anti-fracking advocacy.  There’s a lot of risks involved with fracking and a lot of concerns especially with water quality,” she said.

Hauser says there will be a question and answer session following Jackson’s talk.


Schley Grange Hall:  

3416 Schley Rd

Hillsborough, NC27278 ‎

- Off NC 57 about 6 miles north of Hillsborough

Kinnaird: Environmental Regulations “Swept Aside”

CHAPEL HILL – Two bills survived the crossover deadline this week in the NC General Assembly that some— including Sen. Ellie Kinnaird— say will negatively affect our local environment.

Kinnaird (Dem.) , who represent Orange and Chatham Counties, says one of the things she’s concerned about is Senate Bill 515. It passed in the Senate Wednesday.

“The environmental regulations that have protected our water, air, and soil for so long are just being completely swept aside. These people know that this affects everybody,” Kinnaird said.

The bill would immediately repeal the state’s water protection rules to lessen pollution and run-off into Jordan Lake—the water source for much of the Triangle.

Sponsors for the bill have said the current rules, which were put into place in 2009, are costing developers and cities hundreds of thousands of dollars and need to be changed.

“What we need to look at regionally is having a clean-safe drinking water regionally will have a great economic benefit than saving a little bit of money for one developer,” said local science expert Jeff Danner.

Danner says if the state repeals the current rule, it will allow lawn chemicals to wash in to the lake and this will have to be cleaned-up for drinking purposes. It will also create algae which is bad for fish, among other problems.

Both Kinnaird and Danner are additionally displeased with House Bill 201 that passed the House Wednesday night.

It seeks to revert the Energy Conservation Code for commercial buildings back to 2009 levels— meaning that buildings would be 30 percent less efficient than they are now required to built.

“Up until this recent legislation, North Carolina had been making some strides towards efficient buildings which not only saves money for the occupants—government or private buildings—but we were also developing an industry of people with specialty skills to build these efficient buildings,” Danner said. “This was the right direction for us to go in.”

Danner says emphasis should be put on construction using better building insulation, installing energy-efficient windows, and using natural light instead of depending on electric light.

“I think that’s really unfortunate move by the legislature. One of the most cost-effective measures anyone can make is in the industry field is putting money into efficient buildings upfront,” Danner said .

Concerns About Fracking

Kinnaird also touched on her worries about fracking.

Last year, hydraulic fracturing—otherwise known as “fracking”— was formally legalized in North Carolina. Since then, the N.C. Mining & Energy Commission has been charged with creating regulations for the procedure.

Several weeks ago, the Commission tried to put rules into place regarding the chemicals used during the fracking process—but the Department of Environmental and Natural Resources is trying to prevent the implementation of that first rule.

“The enabling legislation has already gone through. And now it’s a question of whether it will go through in an environmentally friendly way. Our first look is not too promising,” Danner said.

He believes the Commission’s rule was sound and should have been implemented.

“My concerns are if they are not passing a good rule on the disclosure of chemicals, that doesn’t speak well for the more important rules that will come up,” Danner said. “For example, the depth distance between where fracking can occur and where the aquifer is.”

Local Residents Question Fracking Monitoring-Standards

CHAPEL HILL – State residents will have to wait to find out whether the state’s first rule surrounding hydraulic fracturing will be approved—and in the meantime, some local residents are afraid oil industries might have too much influence over any rules that are allowed to exist.

“Here again, if, in the end, there’s no broader consideration for the broader concerns for protecting our water and resources, I  have a lack of confidence they’ll write a good rule in that case,” says local science expert Jeff Danner.

Last year, hydraulic fracturing—otherwise known as “fracking”— was formally legalized in North Carolina. Since then, the N.C. Mining & Energy Commission has been charged with creating regulations for the procedure. On Friday, the commission was set to formally vote on its first rule, which stated that miners would have to publically disclose certain chemicals that were being used. But at the last minute, commission members learned they couldn’t consider the rule yet because officials from Haliburton—one of the country’s biggest oil companies—believe it’s overly harsh in its current form.

During fracking, miners drill high-pressure fluid and chemicals into the ground to obtain natural gas. Many local politicians and residents, such as Danner, have questions about how the practice should be monitored to make sure it stays environmentally safe.

Danner says this could be just the beginning of a larger pattern where high-powered oil industries have too much influence over the rule-making process.

“There are many states where the drilling industry has been successful in implementing the rule the way Haliburton wants it, with no disclosure required,” he says. “So, my concern would be that this would be the case.”

And Danner adds that he believes the commission came up with the axed regulation after productive and careful consideration.

“During the months that the commission has been trying to write the rules, they’ve gotten lots of input from all different sources,” he says. “I’m sure it’s been a challenging project, and during that time, I’m sure they considered all of those inputs and came up with this rule. But then, in the end, this big oil field company giant comes in and just is able to influence our state government to turn away from the commission’s work.”

The commission’s rule is now set to be revised by the North Carolina Department of Environment and Natural Resources.