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23 July, 2011

Letter RE: "Motorists Driving Less, But Gas Prices Keep Rising" *OR* THE REAL TRUTH ABOUT SHALE OIL

In response to our recent post "Motorists Driving Less, But Gas Prices Keep Rising," an anonymous reader had this to say:

"There is no shortage of oil. Did you hear on TV, that there is one trillion barrels of oil in the USA in oil shale rock! Even if they could only get out 10%, that would be 100 billion barrels of oil.

Its the out of control crooked New York City speculators driving up the price so that they can make 10's of millions of dollars for themselves in profits and live in 25 million dollar townhouses in New York City.

During WW2, they couldn't do this or else they would be put in jail, which I think they should be in now!

People have had to cut back on buying groceries so they can buy gas for their car.
People have had to cut back on buying their perscriptions so that they can buy gas.
How are folks suppose to pay rent, make a car payment, pay electric and gas bills, when these out of control crooked New York City speculators keep driving up the price of oil and gasoline?

I've read that they actually want to get the price of gasoline up to 6, 8 or even 10 dollars a gallon!

Could you then afford to pay out $200 a week for gasoline just to drive your car to work?

I believe thats when the SHTF and it all falls apart. Hey, didn't these New York City assholes do this back in 1929? (only it was the stock market back then)"

My Response: I agree with most of what you're saying here with regard to why prices are currently rising. After all, the article I linked to was mostly all about those types of economic reasons for oil and gas to be rising in price. But I feel that I would be remiss if I did not address some uncomfortable facts regarding shale oil that somehow never seem to make it into these types of discussions and could greatly affect all of us moving forward.

Actually, it is estimated that there may be as much as 1.8 trillion barrels of economically feasible oil equivalent in the U.S., according to this report. There is actually quite a bit more than that even, but the economical feasibility of extracting it is judged on many factors - to put it simply, deposits have to be a certain density/thickness before they're worth the trouble. Smaller deposits would result in a lesser EROEI (Energy Returned On Energy Invested) and would, therefore, actually result in gas prices going up as opposed to down. So, taking those numbers into account and going along with your 10% recoverability ratio (which, by the way, is a little high - a more realistic number using today's technology would be closer to 3%-5%), that gives us a net gain of 180 billion barrels of technically recoverable oil equivalent.

Sounds great, doesn't it? The problem arises when you dig deeper into the numbers to see just exactly how much oil we are truly talking about. According to the CIA World Factbook, the United States consumes 18,690,000 barrels of oil per day (2009 estimate); other more recent estimates place it at closer to 19,148,000 barrels/day - not far from a full 25% of total world consumption, if you can believe that (no wonder half the world despises us). So -- using your recoverability estimates which are too high, mind you -- that means the entire quantity of oil in the form of shale rock in the entire United States actually only represents enough petroleum to keep us afloat for approximately 9,631 days or just over 26 years; or, if we share with the rest of the world only 2,074 days/5.68 years. And again, that is with a recoverability ratio that, in reality, is at least twice, if not three times higher than what current technologies can consistently produce.

Every one involved with the petroleum industry always has an eye toward the future, talking about what new technologies are going to be able to do and new oil discoveries that they'll be able to make with those technologies; but we have to live in the real world, where you plan based on what you can do now, not what you hope you might be able to do tomorrow. The truth is that there is probably a wealth of energy potential beneath the earth's crust that exceeds everything we have ever seen before and, in truth, would probably provide us with all that we can ever hope to need. But what good does that do us if we are never able to make those discoveries, because we have used up all of the cheap, readily available energy needed to, not only make such discoveries, but, in truth, to even continue living the way we currently live?

Another important factor to consider is that the estimates above are based on current petroleum consumption, which is rising inexorably along with population growth and changes in people's living habits. EIA estimates forecast future consumption of 28.3 million barrels per day here in the United States as early as 2025. Lifestyles in places like China and India are changing; more and more people are driving cars than ever before and, with greater economic prosperity, meat is becoming more and more a part of the daily diet. What does meat have to do with it, you ask? Beef cattle are fed on grain, which is planted and harvested using modern methods for greater yield - modern methods that rely on cheap, abundant and readily-available sources of energy, namely petroleum. China's oil consumption has risen every year since 1990 to the tune of, if I remember correctly, around 7%; and, while their usage is still far below ours in the States, the two are expected to be more or less on par with one another some time in the 2020s. Rising consumption, when coupled with the fact that new discoveries are coming less and less frequently and most of the world's major oil fields (the sources of the light sweet crude oil that has formed the backbone of our entire world for the past century) are beginning to dry up, it is not hard to see that we are in the for some very interesting and troubling times ahead.

In the end, I imagine that they will eventually have to harvest even those deposits of shale that are not currently considered economically viable as other sources continue to wane. However, the assumption that the public has been fed -- namely that this will make gas prices lower than those we currently pay -- is, quite simply, a fallacy concocted for political reasons by the right-wing "Drill Baby Drill" crowd, in the same vein that the left-wing has been attempting to frighten the American populace into getting behind legislation to raise the debt ceiling by claiming that if this were not done people might not receive their Social Security checks; when, in reality, current outlays would not necessarily be affected.

Shale, after all, is rock. The reason why only a portion of it is considered economically feasible to recover is because it doesn't simply come out of the ground like liquid petroleum. Rather, it must be pulled out of the ground and hauled to another location where it is heated to extract the liquid oil from the stone. You have to consider all of the work that goes into that, including even down to paying the guys who drive the trucks, because all of that affects the overall EROEI (Energy Returned On Energy Invested) and, therefore, the price you pay at the pump. They are currently only processing those shale deposits that represent an EROEI high enough to keep gas prices at a reasonable, if altogether too high, level. It's when they start trying to process those deposits with a lesser EROEI (which, they will, because eventually that is all there's going to be left) that you will truly start to feel the pain at the pump. Also contributing to higher prices when that happens will be the fact that most of the petroleum infrastructure will have to be essentially rebuilt. There are only a few facilities capable of processing shale rock into oil, because it has thus far been such a small-scale operation. The vast majority of the oil industry infrastructure on planet Earth was built to process liquid crude oil, not rock. When the day comes that they must start processing more and more shale, most of the existing infrastructure will be useless and have to be replaced. These costs will either be passed on to consumers at the gas pump or paid for through an emergency government bailout, putting yet another nail in the coffin of the ruinous thing that was once the greatest economy in the world.

Another article you might find interesting, where I have done my best to shine the light on some of the fallacies being presented to the American people: Scientists Confirm U.S. Has World’s Biggest Oil Reserves


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