Transcript 47106 - P2 InfoHouse

$100 Oil
Hard Truths – Reasoned Response
Ron Hinn
Society of Petroleum Engineers
Educators Workshop – September 24, 2008
Denver CO
“Our Energy Future”
Significant Issues of Interest/Importance
The Politics of Energy
Energy “Value”
Hard Truths – Supply / Demand
Reasoned Solutions
The Politics of Energy
“Political Solutions”
We’ve got to build cars that
use less gasoline
Reduce the risk of investing in
renewable fuels by providing
loan guarantees and capital.
Impose a windfall profits tax on
oil companies and use the
money to suspend the gas tax
during the summer
Pressure OPEC to increase oil
production.
Stop new additions to the
Petroleum Reserve
Reduce barriers to increasing
domestic supplies Open up
areas offshore and in Alaska
for exploration.
“We should just replace the
use of oil altogether as
America’s fuel of choice”
(mentions ethanol as a
possible replacement)
Institute a Gas Tax Holiday
Encourage energy efficiency
How Valuable Is Oil?
To the Chemist
Molecular structures of various gasoline's
To the Consumer 
How Valuable Is Oil?
An Interesting Analogy
Commodity Savy?? NYMEX Closing “Spot” Prices 9/23/08
– West Texas Intermediate Crude ($/bbl)
– Natural Gas ($/Mcf)
Volumes
Oil = $107.86/ bbl
Gas = $7.90 / mcf
– 1 Barrel = 42 gallons = 672 cups
– 1 Mcf = 1000 Std. Cubic Feet @ Standard Temp (60F), Pressure (1atm)
Just for fun!
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Grande Latte @ $3.50 (est. = 2 cups)
1 Barrel “Latte” = 672/2 *$3.50 = $1176
1 Barrel of WTI = $108, 1 cup of WTI = $0.16
Energy contained in 1 cup of crude oil?
Assume avg. Car Mileage 25 mpg... Equivalent of 1.6 miles/cup
Chemical Composition of
Hydrocarbons
Crude Oil
84-87%
11-14%
0.06-2%
0.1-2%
0.1-2%
Natural Gas
Carbon
65 – 80%
Hydrogen
1-25%
Sulfur
0-0.2%
Nitrogen
1-15%
Oxygen
0%
Petroleum Products
A Barrel of Crude Oil Provides:
One Barrel =
42 gallons
Gasoline - 19.5 gallons
Fuel Oil - 9.2 gallons
Jet Fuel - 4.1 gallons
Asphalt - 2.3 gallons
Kerosene - 0.2 gallons
Lubricants - 0.5 gallons
Petrochemicals,
other products - 6.2 gallons
American Petroleum Institute,
1999
Hard Truths
Prices – Historic highs
Supply & Demand – Realities
Consumption Habits
Historical Oil Prices – 2006 $
Real Oil Prices*
BP Statistical Review of World Energy June 2007
Historical Energy Use
by Type of Fuel (%)
70
60
50
Wood
Coal
Oil & Gas
Nuclear
Hydro Other
% Of Total 40
Usage 30
20
10
0
1850
1900
1950
2000
SPE 77506 – World Energy Beyond 2050, Arlie Skov
Growing Energy Demand
•1970’s
•Source: 1970 & 2005  BP Statistical Review of World Energy , 2020  EIA International Energy Outlook 2006
Growing Energy Demand
•2005
•Source: 1970 & 2005  BP Statistical Review of World Energy , 2020  EIA International Energy Outlook 2006
... And Energy Demand Growth
Follows
QUADRILLION BTU PER YEAR
History
Projections
500
400
300
200
100
0
1980
1985
1990
1995
2000
OECD
Source: EIA 2007
2005
2010
2015
Non-OECD
2020
2025
2030
World Energy Consumption
The Truth About Oil & Gasoline: An API Primer
1980
Coal, Oil, and Natural Gas
Will Remain
Indispensable
2004
2030
288 QUADRILLION BTU
445 QUADRILLION BTU
678 QUADRILLION BTU
NATURAL
GAS
OIL
COAL
WIND / SOLAR / GEOTHERMAL
HYDRO
NUCLEAR
BIOMASS
Source: IEA REFERENCE CASE
Proved oil reserves at end 2006
BP Statistical Review of World Energy June 2007
Proved oil reserves at end 2006
The Truth About Oil & Gasoline: An API Primer
OPEC Production
Saudi Arabia
Iran
UAE
DEC 2005
Production
Kuwait
Nigeria
SPARE
Venezuela
CAPACITY
Libya
Algeria
Indonesia
Qatar
MILLIONS OF BARRELS
PER DAY
1
Note: Figures exclude Iraq
2
3
4
5
6
7
8
9
10
Source: International Energy Agency
World Oil Consumption & Growth
The Truth About Oil & Gasoline: An API Primer
OPEC “Surplus” ??
The Truth About Oil & Gasoline: An API Primer
The Culprit(s)!
Contributing Factors
– Strong demand growth 2004 +
– Non-OPEC resource access/growth
– OPEC behaviour post 1999
– Deference to efficiency opportunities
– Low spare capacity
– Geopolitics
– Falling value of US Dollar
– Energy as a financial commodity
Supply & Demand
Airline tickets
Stocks
Real Estate
I-Phone
In a free market – commodity prices are driven
by the balance between supply and demand –
For hydrocarbon fuels (oil and gas) the price
equation is becoming evermore dominated by
“supply” related challenges.
Oil Consumption
BP Statistical Review of World Energy June 2007
Demand Challenge
One Example - Fuel Economy
Overall fuel economy for cars and light trucks
peaked at 22.1 mpg in 1987. Fell to 20.8 mpg in
2004. Avg. weight of vehicles has increased
from 3200 lbs. to 4066 lbs.
Federal tax on gasoline = 18.4 cents/gallon
State tax varies (New York 60.8 to Alaska 26.4)
About 70% of new vehicles purchased in US
have 6 cylinders +
89% of vehicles in Europe have 4 cylinders or
less (average fuel economy is 35 mpg)
Wall Street Journal – “Fuel Economy Back in The Saddle”
The Politics of Energy
They (politician’s) want to lower prices but don’t want
more production to increase supply..
They (politician’s) want oil “independence” but they’ve
declared off limits most of the big sources of domestic oil
that could replace foreign imports.
They (politician’s) want Americans to us less oil to
reduce greenhouse gases but they protest higher oil
prices that reduce demand.
They (politician’s) want more oil company investment but
they want to confiscate the profits from that investment.
Wall Street Journal, “Review & Outlook” May 3, 2008
US Potential – “No Trespassing”
Reasoned Energy Solutions?
Access to resources
Enhanced Oil Recovery (EOR) technology
Natural Gas (LNG) / Clean Coal
Alternatives (Nuclear, Wind, Solar, Biomass)
Proved Natural Gas Reserves
BP Statistical Review of World Energy – June 2007
Proved Coal Reserves 2006
BP Statistical Review of World Energy – June 2007
Its All About ---- “Residual Oil Saturation”
Pores
(blue)
Residual Oil Saturation (drivers)
Pore structure
Porosity & permeability
Oil wet vs. water wet
Capillary considerations – IFT
Oil viscosity
Secondary Recovery / EOR Target
Secondary Recovery --Waterflooding (Immiscible)
Depletion
%
Recovery
%
Cumulative
Recovery
Primary
15%
15%
Secondary
20%
35%
OOIP
Remaining??
65%
EOR Target = 65% OOIP
Fundaments of Petroleum – Petroleum Extension Svc. – UT Austin
Principal Enhanced Oil Recovery Methods
Why Do They Work?
Steam Flooding – Heavy Oil / Shallow Depth
– Viscosity reduction
Improves oil mobility
Co2 Miscible – Lighter Oil
– Solvent (CO2) extraction of oil
– Some benefit from viscosity reduction
Improves oil mobility
Domestic EOR Production
Steam 287 Mbopd
CO2
234 Mbopd
Mostly California
Mostly West Texas /
Eastern NM
________
Total
521 Mbopd
Source: Oil & Gas Journal 4/17/06
10% of Total US
Career Opportunities
Engineering
– Petroleum, Chemical, Mechanical, Others
Geoscience
– Geology, Geophysics
Sciences
– All basic sciences - research
Business
– Finance, HR, Management
Acknowledgements
API
– The Truth About Oil and Gasoline: An API Primer
BP
– Statistical Review of World Energy
Energy Information Agency (EIA)
International Energy Agency (IEA)
SPE
– energy4me.org (Energy Education)