$100 Oil Hard Truths – Reasoned Response

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$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. - PowerPoint PPT Presentation

Text of $100 Oil Hard Truths – Reasoned Response

  • $100 OilHard Truths Reasoned Response

    Ron HinnSociety of Petroleum EngineersEducators Workshop September 24, 2008Denver CO

  • Our Energy FutureSignificant Issues of Interest/Importance The Politics of EnergyEnergy ValueHard Truths Supply / DemandReasoned Solutions

  • The Politics of EnergyPolitical SolutionsWeve got to build cars that use less gasolineReduce 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 summerPressure OPEC to increase oil production.Stop new additions to the Petroleum ReserveReduce barriers to increasing domestic supplies Open up areas offshore and in Alaska for exploration.We should just replace the use of oil altogether as Americas fuel of choice (mentions ethanol as a possible replacement)Institute a Gas Tax HolidayEncourage energy efficiency

  • How Valuable Is Oil?To the Chemist Molecular structures of various gasoline's To the Consumer

  • How Valuable Is Oil?An Interesting AnalogyCommodity Savy?? NYMEX Closing Spot Prices 9/23/08West Texas Intermediate Crude ($/bbl)Natural Gas ($/Mcf)

    Volumes1 Barrel = 42 gallons = 672 cups1 Mcf = 1000 Std. Cubic Feet @ Standard Temp (60F), Pressure (1atm)

    Just for fun!Grande Latte @ $3.50 (est. = 2 cups)1 Barrel Latte = 672/2 *$3.50 = $11761 Barrel of WTI = $108, 1 cup of WTI = $0.16Energy contained in 1 cup of crude oil?Assume avg. Car Mileage 25 mpg... Equivalent of 1.6 miles/cup

    Oil = $107.86/ bblGas = $7.90 / mcf

  • Chemical Composition of HydrocarbonsCrude Oil84-87%11-14%0.06-2%0.1-2%0.1-2%

    Natural Gas65 80%1-25%0-0.2%1-15%0%

    CarbonHydrogenSulfurNitrogenOxygen

  • Petroleum ProductsGasoline - 19.5 gallonsA Barrel of Crude Oil Provides:Fuel Oil - 9.2 gallonsJet Fuel - 4.1 gallonsAsphalt - 2.3 gallonsKerosene - 0.2 gallonsLubricants - 0.5 gallonsPetrochemicals,other products - 6.2 gallonsOne Barrel =42 gallonsAmerican Petroleum Institute, 1999

  • Hard TruthsPrices Historic highsSupply & Demand RealitiesConsumption Habits

  • Historical Oil Prices 2006 $Real Oil Prices*BP Statistical Review of World Energy June 2007

  • Historical Energy Use by Type of Fuel (%) SPE 77506 World Energy Beyond 2050, Arlie Skov

  • Growing Energy Demand1970sSource: 1970 & 2005 BP Statistical Review of World Energy , 2020 EIA International Energy Outlook 2006

  • Growing Energy DemandSource: 1970 & 2005 BP Statistical Review of World Energy , 2020 EIA International Energy Outlook 2006 2005

  • ... And Energy Demand Growth FollowsHistoryProjectionsSource: EIA 2007010020030040050019801985199019952000200520102015202020252030QUADRILLION BTU PER YEAR

  • World Energy ConsumptionThe Truth About Oil & Gasoline: An API Primer

  • Coal, Oil, and Natural GasWill Remain IndispensableSource: IEA REFERENCE CASE198020042030

    288 QUADRILLION BTU

    445 QUADRILLION BTUBIOMASSNUCLEARWIND / SOLAR / GEOTHERMAL

    678 QUADRILLION BTUHYDROOILNATURAL GAS COAL

  • Proved oil reserves at end 2006BP Statistical Review of World Energy June 2007

  • Proved oil reserves at end 2006The Truth About Oil & Gasoline: An API Primer

  • OPEC Production

  • World Oil Consumption & GrowthThe Truth About Oil & Gasoline: An API Primer

  • OPEC Surplus ??The Truth About Oil & Gasoline: An API Primer

  • The Culprit(s)!Contributing FactorsStrong demand growth 2004 + Non-OPEC resource access/growthOPEC behaviour post 1999Deference to efficiency opportunitiesLow spare capacityGeopoliticsFalling value of US DollarEnergy as a financial commodity

  • Supply & DemandAirline ticketsStocksReal EstateI-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 ConsumptionBP Statistical Review of World Energy June 2007

  • Demand ChallengeOne Example - Fuel EconomyOverall 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/gallonState 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 EnergyThey (politicians) want to lower prices but dont want more production to increase supply..They (politicians) want oil independence but theyve declared off limits most of the big sources of domestic oil that could replace foreign imports.They (politicians) want Americans to us less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They (politicians) 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 resourcesEnhanced Oil Recovery (EOR) technologyNatural Gas (LNG) / Clean CoalAlternatives (Nuclear, Wind, Solar, Biomass)

  • Proved Natural Gas ReservesBP Statistical Review of World Energy June 2007

  • Proved Coal Reserves 2006BP Statistical Review of World Energy June 2007

  • Pores(blue)Its All About ---- Residual Oil SaturationResidual Oil Saturation (drivers)

    Pore structure Porosity & permeabilityOil wet vs. water wetCapillary considerations IFTOil viscosity

  • Secondary Recovery ---Waterflooding (Immiscible)Secondary Recovery / EOR TargetFundaments of Petroleum Petroleum Extension Svc. UT AustinEOR Target = 65% OOIP

    Depletion%Recovery% CumulativeRecoveryPrimary15%15%Secondary20%35%OOIP Remaining??65%

  • Principal Enhanced Oil Recovery MethodsWhy Do They Work?

    Steam Flooding Heavy Oil / Shallow DepthViscosity reductionImproves oil mobility

    Co2 Miscible Lighter OilSolvent (CO2) extraction of oil Some benefit from viscosity reductionImproves oil mobility

  • Domestic EOR ProductionSteam287 MbopdMostly CaliforniaCO2234 MbopdMostly West Texas / Eastern NM

    ________Total 521 Mbopd10% of Total US

    Source: Oil & Gas Journal 4/17/06

  • Career OpportunitiesEngineeringPetroleum, Chemical, Mechanical, OthersGeoscienceGeology, GeophysicsSciencesAll basic sciences - researchBusinessFinance, HR, Management

  • AcknowledgementsAPI The Truth About Oil and Gasoline: An API PrimerBPStatistical Review of World EnergyEnergy Information Agency (EIA)International Energy Agency (IEA)SPEenergy4me.org (Energy Education)

    **********And as incomes rise so does demand for energy. The reference case projections for world energy demand show roughly a 50-60 percent increase in demand from 2005 to 2030. Very soon, and for the first time in history, non-OECD energy demand will exceed OECD energy demand. This has geopolitical implications as well which you will hear about later.**This is the IEA reference case outlook which is generally indicative of most of the outlooks that we reviewed. We have seen significant growth in non-fossil fuel energy sources and more is projected. Although the share of non-fossil fuels is growing rapidly, fossil fuels will continue to play a significant role through 2030. This is the hard truth about demand that fossil fuels are indispensable to satisfy demand as global prosperity and incomes increase. ******