The Shale Oil Myth

As you know, the renewable energy movement has been based on the concern we are using up fossil fuel resources. Shale oil is now supposed to save us from depletion. In truth, this is a myth. 

No, the issue is not how much is left, but how much can we PRODUCE on a daily basis. For the last 60 years, we've had access to easy oil. Easy oil has been found in fields that have required us to do no more than stick a straw in them and suck the oil out. In truth, we haven't even had to suck the oil out because it tends to rise to the surface on its own do to pressure issues and the fact it is lighter than water. Given this, we've been able to pretty much produce as much oil as we could possibly need with 125 huge oil fields, known as "elephants" in the business, producing most of it. For instance, the Ghawar field in Saudi Arabia has produced 1 out of every 7 barrels of oil we've used since the 1950s. 

The problem we are running into now is not that we are running out of oil, but that the massive elephant fields have "peaked" and are now producing less and less oil each year. Take the Cantarell oil field in Mexico, the third largest in the world, it has peaked and is now seeing production drop massively each year. We are talking about 12 percent a year, with a drop from a high of 2.2 million barrels a day in 2004 to 558,000 barrels a day in 2010. The Mexican federal government relies on the proceeds from oil sales for 40 to 60 percent of its budget depending on the year. With the massive loss of oil production has come a loss of revenues. Not surprisingly, law and order is on the wane in the country as well. 

The real scare is nearly every elephant oil field in the world is in decline. The International Energy Agency says we need to find four Saudi Arabia's in the next 20 years just to maintain our current production levels. With China and India demand growing, we are also going to need to not only maintain our current production levels, but increase them dramatically. 

So, what about shale oil? You've undoubtedly read about the oil boom in the United States. Well, the news is there are hundreds of billions of barrels of oil in the form of shale deposits around the country with North Dakota and Texas two of the hot spots. This, however, doesn't really mean much for a very simple problem – the production amounts from shale are far too small to make up for the loss of traditional "easy oil". 

Shale oil comes with a big production problem. Unlike traditional oil fields, one does not just stick a pipe down in the ground and suck out the oil. No, shale oil comes in either a tar or dry form. To get at it, companies will drill down a long distance and then sideways. The end of the pipe is typically perforated. The drillers will then pump down a solution of toxic chemicals, sand and hot water. This is forced out of the perforated slot and starts to dissolve the materials around the pipe including the oil in whatever form it is in. The resulting slurry is then sucked back up the pipe to be processed. 

As you can probably see, the amount of oil produced from this process is much less than just tapping a traditional oil field. In fact, the return is so poor that oil prices needed to stay over $80 or so for it to even make economic sense. Shale oil is not a new discovery. Chevron drilled the Bakkens in the 1980s, but stopped because the process was so expensive. With oil at $100 a barrel as I write this, the economic equation has changed. 

Shale oil is a viable oil source, but only to the extent of the number of barrels of oil it can produce each day. The United States uses about 19 million barrels of oil a day. Shale oil companies produced about 275,000 barrels of oil a day in 2010. Yes, you read that right. Less than 2 percent of our daily needed oil supply. It is estimated that with technology advances and what have you, production might rise to 3.5 million barrels a day…by 2025. 3.5 million barrels will help, but it is a drop in the proverbial bucket.

The assertion that shale oil will make the United States energy independent is a laughable myth. Even with the small amount of oil production done now from shale, there are a host of problems running from a lack of sufficient water as we've seen in Texas this year to potential leakage of the toxic chemicals used into the water table to some asserting that the process destabilizes the ground [a problem for those living above it!]. 

Shale oil is a positive step to keep us from running out, but it is not a solution to our energy problem and never will be. There is an old saying in Colorado about shale oil – "Shale oil is the energy solution of the future…and always will be!"

Don't buy the hype. 

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