$100 Oil Hard Truths – Reasoned Response Ron Hinn Society of Petroleum Engineers Educators Workshop – September 24, 2008 Denver CO.

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Presentation transcript:

$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 –1 Barrel = 42 gallons = 672 cups –1 Mcf = 1000 Std. Cubic Standard Temp (60F), Pressure (1atm) Just for fun! –Grande $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 Oil = $107.86/ bbl Gas = $7.90 / mcf

Chemical Composition of Hydrocarbons Crude Oil 84-87%11-14%0.06-2%0.1-2%0.1-2% Natural Gas 65 – 80% 1-25%0-0.2%1-15%0%CarbonHydrogenSulfurNitrogenOxygen

Petroleum Products Gasoline gallons A Barrel of Crude Oil Provides: Fuel Oil gallons Jet Fuel gallons Asphalt gallons Kerosene gallons Lubricants gallons Petrochemicals, other products gallons One Barrel = 42 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 (%) SPE – 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 Source: 1970 & 2005  BP Statistical Review of World Energy, 2020  EIA International Energy Outlook

... And Energy Demand Growth Follows HistoryProjections Source: EIA 2007 Non-OECDOECD QUADRILLION BTU PER YEAR

World Energy Consumption The Truth About Oil & Gasoline: An API Primer

Coal, Oil, and Natural Gas Will Remain Indispensable Source: IEA REFERENCE CASE QUADRILLION BTU445 QUADRILLION BTU BIOMASS NUCLEAR WIND / SOLAR / GEOTHERMAL 678 QUADRILLION BTU HYDRO OIL NATURAL GAS COAL

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

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 –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 Fell to 20.8 mpg in 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

Pores (blue) Its All About ---- “Residual Oil Saturation” Residual Oil Saturation (drivers) Pore structure Porosity & permeability Oil wet vs. water wet Capillary considerations – IFT Oil viscosity

Secondary Recovery --- Waterflooding (Immiscible) Secondary Recovery / EOR Target Fundaments of Petroleum – Petroleum Extension Svc. – UT Austin Depletion%Recovery% Cumulative CumulativeRecovery Primary15%15% Secondary20%35% OOIP Remaining?? 65% EOR Target = 65% OOIP

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 Steam287 MbopdMostly California CO2234 MbopdMostly West Texas / Eastern NM ________ ________ Total 521 Mbopd10% of Total US Source: Oil & Gas Journal 4/17/06

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)