Transcript
Page 1: $100 Oil Hard Truths – Reasoned Response

$100 Oil$100 OilHard Truths – Reasoned ResponseHard Truths – Reasoned Response

Ron HinnRon HinnSociety of Petroleum EngineersSociety of Petroleum Engineers

Educators Workshop – September 24, 2008Educators Workshop – September 24, 2008Denver CODenver CO

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““Our Energy Future”Our Energy Future”Significant Issues of Interest/ImportanceSignificant Issues of Interest/Importance

The Politics of EnergyThe Politics of Energy

Energy “Value”Energy “Value”

Hard Truths – Supply / DemandHard Truths – Supply / Demand

Reasoned SolutionsReasoned Solutions

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The Politics of EnergyThe Politics of Energy“Political Solutions”“Political Solutions”

We’ve got to build cars that We’ve got to build cars that use less gasolineuse less gasolineReduce the risk of investing in Reduce the risk of investing in renewable fuels by providing renewable fuels by providing loan guarantees and capital. loan guarantees and capital. Impose a windfall profits tax on Impose a windfall profits tax on oil companies and use the oil companies and use the money to suspend the gas tax money to suspend the gas tax during the summerduring the summerPressure OPEC to increase oil Pressure OPEC to increase oil production.production.Stop new additions to the Stop new additions to the Petroleum ReservePetroleum Reserve

Reduce barriers to increasing Reduce barriers to increasing domestic supplies Open up domestic supplies Open up areas offshore and in Alaska areas offshore and in Alaska for exploration.for exploration.““We should just replace the We should just replace the use of oil altogether as use of oil altogether as America’s fuel of choice” America’s fuel of choice” (mentions ethanol as a (mentions ethanol as a possible replacement)possible replacement)Institute a Gas Tax HolidayInstitute a Gas Tax HolidayEncourage energy efficiency Encourage energy efficiency

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How Valuable Is Oil?How Valuable Is Oil?

To the Chemist Molecular structures of various gasoline's

To the Consumer

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How Valuable Is Oil?How Valuable Is Oil?An Interesting AnalogyAn Interesting Analogy

Commodity Savy?? NYMEX Closing “Spot” Prices 9/23/08Commodity Savy?? NYMEX Closing “Spot” Prices 9/23/08– West Texas Intermediate Crude ($/bbl)West Texas Intermediate Crude ($/bbl)– Natural Gas ($/Mcf) Natural Gas ($/Mcf)

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

Just for fun!Just for fun!– Grande Latte @ $3.50 (est. = 2 cups)Grande Latte @ $3.50 (est. = 2 cups)– 1 Barrel “Latte” = 672/2 *$3.50 = $11761 Barrel “Latte” = 672/2 *$3.50 = $1176– 1 Barrel of WTI = $108, 1 cup of WTI = $0.161 Barrel of WTI = $108, 1 cup of WTI = $0.16– Energy contained in 1 cup of crude oil?Energy contained in 1 cup of crude oil?

Assume avg. Car Mileage 25 mpg... Equivalent of 1.6 miles/cup Assume avg. Car Mileage 25 mpg... Equivalent of 1.6 miles/cup

Oil = $107.86/ bblGas = $7.90 / mcf

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Chemical Composition of Chemical Composition of HydrocarbonsHydrocarbons

Crude OilCrude Oil

84-87%84-87%

11-14%11-14%

0.06-2%0.06-2%

0.1-2%0.1-2%

0.1-2%0.1-2%

Natural GasNatural Gas

65 – 80%65 – 80%

1-25%1-25%

0-0.2%0-0.2%

1-15%1-15%

0%0%

CarbonCarbon

HydrogenHydrogen

SulfurSulfur

NitrogenNitrogen

OxygenOxygen

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PetroleumPetroleum ProductsProducts

Gasoline - 19.5 gallonsGasoline - 19.5 gallons

A Barrel of Crude Oil Provides:A Barrel of Crude Oil Provides:

Fuel Oil - 9.2 gallonsFuel Oil - 9.2 gallons

Jet Fuel - 4.1 gallonsJet Fuel - 4.1 gallons

Asphalt - 2.3 gallonsAsphalt - 2.3 gallons

Kerosene - 0.2 gallonsKerosene - 0.2 gallons

Lubricants - 0.5 gallonsLubricants - 0.5 gallons

Petrochemicals,Petrochemicals,other products - 6.2 gallonsother products - 6.2 gallons

One Barrel =One Barrel =42 gallons42 gallons

American Petroleum Institute, American Petroleum Institute, 19991999

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Hard TruthsHard Truths

Prices – Historic highsPrices – Historic highs

Supply & Demand – RealitiesSupply & Demand – Realities

Consumption Habits Consumption Habits

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Historical Oil Prices – 2006 $Historical Oil Prices – 2006 $

Real Oil Prices*

BP Statistical Review of World Energy June 2007

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Historical Energy Use Historical Energy Use by Type of Fuel (%) by Type of Fuel (%)

0

10

20

30

40

50

60

70

% Of Total Usage

1850 1900 1950 2000

WoodCoalOil & GasNuclearHydro Other

SPE 77506 – World Energy Beyond 2050, Arlie Skov

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Growing Energy DemandGrowing Energy Demand

•1970’s

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

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Growing Energy DemandGrowing Energy Demand

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

•2005

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... And Energy Demand Growth ... And Energy Demand Growth FollowsFollows

History Projections

Source: EIA 2007

Non-OECDOECD

0

100

200

300

400

500

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

QU

AD

RIL

LIO

N B

TU

PE

R Y

EA

R

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World Energy ConsumptionWorld Energy Consumption

The Truth About Oil & Gasoline: An API Primer

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Coal, Oil, and Natural GasCoal, Oil, and Natural GasWill Remain IndispensableWill Remain Indispensable

Source: IEA REFERENCE CASE

1980 2004 2030

288 QUADRILLION BTU 445 QUADRILLION BTU

BIOMASSNUCLEAR

WIND / SOLAR / GEOTHERMAL

678 QUADRILLION BTU

HYDRO

OIL

NATURAL GAS

COAL

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Proved oil reserves at end 2006Proved oil reserves at end 2006

BP Statistical Review of World Energy June 2007

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Proved oil reserves at end 2006Proved oil reserves at end 2006

The Truth About Oil & Gasoline: An API Primer

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OPEC ProductionOPEC Production

1 2 3 4 5 6 7 8 9 10

DEC 2005Production

MILLIONS OF BARRELS PER DAY

SPARE

CAPACITY

Note: Figures exclude Iraq Source: International Energy Agency

Saudi Arabia

Kuwait

Nigeria

Venezuela

Libya

Algeria

UAE

Iran

Indonesia

Qatar

1 2 3 4 5 6 7 8 9 10

DEC 2005Production

MILLIONS OF BARRELS PER DAY

SPARE

CAPACITY

Note: Figures exclude Iraq Source: International Energy Agency

Saudi Arabia

Kuwait

Nigeria

Venezuela

Libya

Algeria

UAE

Iran

Indonesia

Qatar

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World Oil Consumption & GrowthWorld Oil Consumption & Growth

The Truth About Oil & Gasoline: An API Primer

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OPEC “Surplus” ??OPEC “Surplus” ??

The Truth About Oil & Gasoline: An API Primer

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The Culprit(s)!The Culprit(s)!

Contributing FactorsContributing Factors– Strong demand growth 2004 + Strong demand growth 2004 + – Non-OPEC resource access/growthNon-OPEC resource access/growth– OPEC behaviour post 1999OPEC behaviour post 1999– Deference to efficiency opportunitiesDeference to efficiency opportunities– Low spare capacityLow spare capacity– GeopoliticsGeopolitics– Falling value of US DollarFalling value of US Dollar– Energy as a financial commodityEnergy as a financial commodity

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Supply & DemandSupply & Demand

Airline ticketsAirline ticketsStocksStocksReal EstateReal EstateI-PhoneI-Phone

In a free market – commodity prices are driven In a free market – commodity prices are driven by the balance between supply and demand – by the balance between supply and demand – For hydrocarbon fuels (oil and gas) the price For hydrocarbon fuels (oil and gas) the price equation is becoming evermore dominated by equation is becoming evermore dominated by “supply” related challenges. “supply” related challenges.

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Oil ConsumptionOil Consumption

BP Statistical Review of World Energy June 2007

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Demand ChallengeDemand ChallengeOne Example - Fuel EconomyOne Example - Fuel Economy

Overall fuel economy for cars and light trucks Overall fuel economy for cars and light trucks peaked at 22.1 mpg in 1987. Fell to 20.8 mpg in peaked at 22.1 mpg in 1987. Fell to 20.8 mpg in 2004. Avg. weight of vehicles has increased 2004. Avg. weight of vehicles has increased from 3200 lbs. to 4066 lbs.from 3200 lbs. to 4066 lbs.Federal tax on gasoline = 18.4 cents/gallonFederal tax on gasoline = 18.4 cents/gallonState tax varies (New York 60.8 to Alaska 26.4)State tax varies (New York 60.8 to Alaska 26.4)About 70% of new vehicles purchased in US About 70% of new vehicles purchased in US have 6 cylinders +have 6 cylinders +89% of vehicles in Europe have 4 cylinders or 89% of vehicles in Europe have 4 cylinders or less (average fuel economy is 35 mpg)less (average fuel economy is 35 mpg)

Wall Street Journal – “Fuel Economy Back in The Saddle”

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The Politics of EnergyThe Politics of EnergyThey (politician’s) want to lower prices but don’t want They (politician’s) want to lower prices but don’t want more production to increase supply..more production to increase supply..They (politician’s) want oil “independence” but they’ve They (politician’s) want oil “independence” but they’ve declared off limits most of the big sources of domestic oil declared off limits most of the big sources of domestic oil that could replace foreign imports.that could replace foreign imports.They (politician’s) want Americans to us less oil to They (politician’s) want Americans to us less oil to reduce greenhouse gases but they protest higher oil reduce greenhouse gases but they protest higher oil prices that reduce demand. prices that reduce demand. They (politician’s) want more oil company investment but They (politician’s) want more oil company investment but they want to confiscate the profits from that investment.they want to confiscate the profits from that investment.

Wall Street Journal, “Review & Outlook” May 3, 2008Wall Street Journal, “Review & Outlook” May 3, 2008

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US Potential – “No Trespassing”US Potential – “No Trespassing”

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Reasoned Energy Solutions?Reasoned Energy Solutions?

Access to resourcesAccess to resources

Enhanced Oil Recovery (EOR) technologyEnhanced Oil Recovery (EOR) technology

Natural Gas (LNG) / Clean CoalNatural Gas (LNG) / Clean Coal

Alternatives (Nuclear, Wind, Solar, Biomass)Alternatives (Nuclear, Wind, Solar, Biomass)

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Proved Natural Gas ReservesProved Natural Gas Reserves

BP Statistical Review of World Energy – June 2007

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Proved Coal Reserves 2006Proved Coal Reserves 2006

BP Statistical Review of World Energy – June 2007

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Pores(blue)

Its All About ---- “Residual Oil Saturation”Its All About ---- “Residual Oil Saturation”

Residual Oil Saturation (drivers)

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

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Secondary Recovery ---Waterflooding (Immiscible)

Secondary Recovery / EOR TargetSecondary Recovery / EOR Target

Fundaments of Petroleum – Petroleum Extension Svc. – UT Austin

DepletionDepletion

%%

RecoveryRecovery

%%

CumulativeCumulative

RecoveryRecovery

PrimaryPrimary 15%15% 15%15%

SecondarySecondary 20%20% 35%35%

OOIP OOIP Remaining??Remaining??

65% 65%

EOR Target = 65% OOIP

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Principal Enhanced Oil Recovery MethodsPrincipal Enhanced Oil Recovery MethodsWhy Do They Work?Why Do They Work?

Steam Flooding – Heavy Oil / Shallow DepthSteam Flooding – Heavy Oil / Shallow Depth– Viscosity reductionViscosity reduction

Improves Improves oil mobilityoil mobility

Co2 Miscible – Lighter OilCo2 Miscible – Lighter Oil– Solvent (CO2) extraction of oil Solvent (CO2) extraction of oil – Some benefit from viscosity reductionSome benefit from viscosity reduction

Improves Improves oil mobilityoil mobility

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Domestic EOR ProductionDomestic EOR Production

SteamSteam 287 Mbopd287 Mbopd Mostly CaliforniaMostly CaliforniaCO2CO2 234 Mbopd234 Mbopd Mostly West Texas / Mostly West Texas /

Eastern NMEastern NM

________________

Total Total 521 Mbopd521 Mbopd 10% of Total US10% of Total US

Source: Oil & Gas Journal 4/17/06

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Career OpportunitiesCareer Opportunities

EngineeringEngineering– Petroleum, Chemical, Mechanical, OthersPetroleum, Chemical, Mechanical, Others

GeoscienceGeoscience– Geology, GeophysicsGeology, Geophysics

SciencesSciences– All basic sciences - researchAll basic sciences - research

BusinessBusiness– Finance, HR, ManagementFinance, HR, Management

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AcknowledgementsAcknowledgements

API API – The Truth About Oil and Gasoline: An API PrimerThe Truth About Oil and Gasoline: An API Primer

BPBP– Statistical Review of World EnergyStatistical Review of World Energy

Energy Information Agency (EIA)Energy Information Agency (EIA)

International Energy Agency (IEA)International Energy Agency (IEA)

SPESPE– energy4me.org (Energy Education)energy4me.org (Energy Education)


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