LIQUID FUELS FILL VITAL PART OF U.S. ECONOMY

L.F. Ivanhoe
Novum Corp.
Santa Barbara, Calif.

That liquid fuels are vital to the U.S. economy is obvious. Less obvious to the American public and to industrial and public managements is the steady and serious decline in U.S. production of crude oil, the major component of the domestic liquid fuel supply. This decline has serious portents for our future well being.

U.S. production of liquid petroleum fuels comprises five distinct components: Crude oil and condensate from oil wells (hereinafter referred to as crude oil) from (1) Onshore lower 48 states (US48) including strippers and enhanced oil recovery of heavy oil (EOR); (2) Offshore; (3) Alaska; (4) Natural gas liquids (NGL) from gas wells; (5) Miscellaneous: benzol, other hydrocarbons, alcohol, etc. The supply (consumption) of liquid fuels is the sum of U.S. production plus imports of crude oil and refined products such as gasoline, 1/, (Fig. 2)

Production of crude oil from all U.S. areas peaked in 1970 at 9,637,000 barrels of oil per day (BOPD); by 1988 production had declined to 8,129,000 BOPD. Imports of crude oil and products were 7,180,000 BOPD in 1988, 47% of the total oil supply of 15,309,000 BOPD; imports had increased 41% in the 3 years following the ephemeral "oil glut" of 1985.

PROJECTIONS OF U.S. PRODUCTION 1990-2010

Periodically updated engineering reports on future oil production from each of the five components can be found in the technical literature, 71. Summation of the individual components at any date will give realistic projections of any part of the future U.S. liquid fuel production, (e.g. total crude oil production in 1988 was 8.1 million bo/d vs estimated 6.2 million bo/d in year 2000), (Fig. 2).

Dr. M. King Hubbert critically analyzed the U.S. oil and gas discovery rates in 1956, and then predicted that US48 crude oil production would top out about 1970, 2/. That precocious forecast was later proven true and his other predictions on the subject are still substantially correct within 5%. The burden of proof is now on his critics' Hubbert's 1962 estimate (repeated in 1972) for the ultimate oil recovery (EUR) of the lower 48 states onshore & offshore, was for 170 billion bbl of crude oil, 3/. The latest 1989 U.S. oil resource estimate by the U.S. Geological Survey and Minerals Management Service is in close agreement with Hubbert's 1962 forecast, 6/. The smooth curve for Hubbert's 1962 EUR is shown as a heavy dotted line on Fig. 1 and provides a realistic projection of future US48 oil production.

LOWER 48 STATES - ONSHORE

Fig. 2 clearly shows that production from the great US48 onshore oil base, from thousands of old fields of all sizes discovered since 1859, is in serious decline. Production peaked at 7.8 million bo/d in 1970 and by 1988 was down to 4.9 million bo/d, a decline of 37% within 18 years. If the average 2%/year decline rate continues until year 2010, oil production in the US48 onshore will then be only about 2.2 million bo/d. This is in line with Hubbert's 1962 decline forecast, (Fig. 1). From 1983 to 1985, there was a slight increase in the US48 onshore oil production that suggested to many (wishful) planners that the decline curve had been reversed permanently. Unfortunately, oil production resumed its 2%/year decline again in 1986, and shows no indication of leveling off until after year 2010 at less than half its current level.

This is very bad news, of which most U.S. oil consumers are completely unaware. The onshore lower 48 region is the foundation for the total internal U.S. oil production, which along with the U.S.S.R. and Saudi Arabia, is still one of the world's three supergiant oil bases. To get the public's cooperation, the oil industry should emphasize the steady decline of the nation's principal oil production base. The US48 onshore has the world's greatest oil infrastructure (i.e. towns, roads, wells, pipelines, refineries, etc.) plus a capitalistic legal system with private ownership of most oil/mineral rights. When the oil industry can no longer produce oil profitably from established fields in onshore Texas - we are in bad trouble. The oil industry now expects few major discoveries in the fished-out US48 onshore where most major companies have cut back on exploration as uneconomic.

"Scavenger" production has been defined as oil recovered after the easy-to-produce "flush" oil is exhausted, and is a significant part of the US48 onshore production, 4/. Scavenger production includes "stripper" wells and EOR. Scavenger wells are normally profitable only where a complete infrastructure already exists, and thus are rarely profitable offshore or in Alaska where operating costs on marine platforms and on permafrost are much higher than in the onshore US48. No increase in scavenger oil production is projected through the year 2010, despite glowing projections by Texan academics for EOR, 8/.

Stripper wells are those producing less than 10 bo/d. These are the "clunkers" of oil production. As with cars, their numbers remain steady, with new clunkers (or strippers) coming along as the old ones are abandoned. It is very difficult to rejuvenate either old clunkers or stripper wells. However, the large number of strippers adds up to a significant part of the U.S. oil production. In 1988, the 454,150 stripper wells in the US48 onshore produced a total of 1,213,000 bo/d, 24% of the total US48 onshore production.

EOR techniques will undoubtedly be improved and may be profitable in many US48 onshore fields in future years. Such EOR may hold oil production in the US48 onshore a bit higher after 2010 than was suggested by Hubbert's 1972 curve which did not include EOR. But total production from the US48 will decline inexorably as flush production becomes scavenger production.

OFFSHORE

The offshore component includes all U.S. offshore production from the US48 and from Alaska. However, offshore oil production (1,168,000 bo/d in 1988) is effectively restricted to the lower 48 states of California, Texas, and Louisiana. Unfortunately, only one commercial discovery (off the Arctic coast) has been made since the 1960s on the extensive continental shelves surrounding Alaska for which the oil industry and the U.S. Geological Survey had great hopes in the early 1970s. The 4 Upper Cook Inlet fields that were discovered during the 1960s have now declined to produce a total of some 10,000 bo/d; Endicott field in the arctic is not yet on production.

U.S. offshore oil production peaked at 1,684,000 bo/d in 1971 when the first offshore fields discovered by the new electronic "digital" seismic techniques in the Gulf of Mexico were brought on stream. Production for 1988 was for 1,168,000 bo/d, about the same as in 1977, (Fig. 1). Future production from offshore fields is expected to decline gradually as the known fields reach maturity. (20 years is "middle age" for an oil field.) Production is stalled from new fields in California's waters by environmental concerns. (But the local county still collects a property tax on the idle platforms! They always need money. Could royalty-sharing with coastal counties get their cooperation for the Federal government's efforts to develop offshore oil? Royalty payments certainly get the cooperation of Texas ranchers who happen to live where operators want to drill.)

ALASKA

Onshore Alaska supplied 25% of the total U.S. oil production in 1988, almost all of it from the supergiant Prudhoe Bay field on the Arctic Slope, which was discovered in 1968 and went on stream after the TAP pipeline was completed in 1978. The field began its decline phase in early 1989 when production capacity fell below pipeline capacity. The field will henceforth produce less oil each year. The shortage will be only partly replaced by new production from the near-by Kuparuk River and other smaller fields on the North Slope. The old 1960s discoveries around the Upper Cook Inlet are declining steadily. Alaska's only major untested prospects for discovery and production during the 1990s are in the Arctic National Wildlife Refuge (ANWR) area, but the ANWR is still tied up in the U.S. Congress by environmental fears, 7/.

NATURAL GAS LIQUIDS

Natural gas liquids (NGL) are petroleum liquids produced as by-products from "wet" natural gas wells, just as condensate is a by-product from oil wells. NGL are usually not included with crude oil statistics, but are a significant part of our liquid fuel supplies that run automobiles.

NGL production is virtually all from gas wells in the lower 48 states and has held close to 1,600,000 bo/d since 1969. Future NGL production depends on the natural gas production from wet-gas wells. It is expected to hold steady through the next decade until the wet-gas wells begin to decline.

MISCELLANEOUS

These include all liquid fuels that do not fit into the previous categories, (i.e. benzol, other hydrocarbons, hydrogen, alcohol, etc.) Such fuels have increased slowly from less than 5,000 bo/d in 1950 to 350,000 bo/d in 1970, to 1,040,000 bo/d in 1988. This category includes the popular methanol and other alternative fuels that some of the public hope will replace gasoline in their cars. Such alternatives are expected to increase in future years, although not nearly fast enough to have a substantial effect on the decline of the total U.S. liquid fuels production. The U.S. government has proposed that U.S. manufacturers should produce 1,000,000 cars a year that run on alternative fuels beginning in 1997; but those will be only a minor part of the current total of over 180,000,000 vehicles in the USA and will barely begin to correct all environmental problems.

STRATEGIC PETROLEUM RESERVE

The SPR of 0.6 BBO will be critical for any short-term crises, but like a spare can of gasoline, will be quickly depleted if used. Government and military needs will always have first priorities for fuel during any emergencies. Once gone, the SPR will require years to replace (if ever).

The volume of the SPR (0.6 BBO) is shown to scale as a small rectangle (=O.3 BBO x 2 years) at year 2000 on Figure 2.

IMPORTS

No forecasts are made for future imports of crude oil or its products. Imports will depend principally on currently unpredictable US. politics, fuel taxes, OPEC oil prices, etc. However, imports will be a major part of the U.S liquid fuel supply and a critical drain on the U.S. balance of payments. The world now produces over 58 million bo/d (or almost one million gallons of oil each year); 25% of this oil is burned up in the U.S., of which about 50% is now imported. Our huge consumption is a major part of the global oil supply problem. U.S. domestic production and consumption affect the entire world's economy. By the end of the next decade, the U.S. government may be curtailing oil imports by serious conservation policies - i.e. The Third Oil Shock!

OBSERVATIONS ON U.S. POLITICS AND POLICIES

Facts do not cease to exist just because they are ignored.

The Amerian public is schizophrenic about oil. Its love hate relationship is irrational. The oil industry and the public see each other in different light and it is sometimes hard to believe that both are parts of one nation. The efficient oil industry is not getting the critical "declining domestic supply" message across to the American public, which considers inexpensive and abundant gasoline - on demand - to be a constitutional right (while blaming the oil industry for all pollution and problems resulting from the use of oil!) The public views oil industry activities in the same light as military maneuvers (i.e. maybe essential but NIMBY = Not in my back yard.) But few Americans have enough faith in their government bureaucracies that they would prefer to have their gasoline distributed by a U.S. agency - like the Pentagon or the Postal Service. The public does not understand the difference between the "upstream" and "downstream" phases of the industry, nor does it distinguish the many companies that are all part of the industry. Inasmuch as the public's main contact with oil companies is through gasoline service stations, much of the public does not even realize that the upstream exploration and production functions exist. They are not aware of how critical 10cts/gallon ($4/barrel) is to the upstream oil producers.

TIMING when any oil RESERVES may be produced is critical in a short-term society like ours. Like stockmarket crashes, hurricanes, earthquakes, and death, the WHEN is far more important to the public than discussions about the possible magnitude of a future crisis. It will take at least 5-15 years of lead time to put any new oil fields, EOR projects, or alternative fuels on stream. Time is no longer on our side (Figure 2).

Unfortunately, by the late 1990s, oil reserves and production will be declining in virtually all non-OPEC countries and thereafter the world will depend upon the OPEC nations for oil imports. Our elected government is understandably reluctant to face up to this unpleasant fact and legislate unpopular conservation measures due to the vehement objections of two groups of voters - namely those who BUY gasoline and those who SELL it. Not even a major earthquake can jar them loose.

The common argument that we should defer U.S. exploration while buying oil from OPEC is completely unrealistic. Buying our own oil keeps the money in our family - not paid out to foreigners. Present prices will not last. The USA is still one of the world's three supergiant oil producers (1988 = 8.1 million bo/d), and as such helps moderate global prices. Like defense expenditures, national oil production is essential for a global superpower like the USA or USSR, but not for other nations (like Japan) that are protected by a superpower's defense/oil shield. As our oil production declines, OPEC will take up the global slack and raise prices. Saudi Arabia is again investing billions of dollars to be ready when their oil is again in demand. Why should the Moslem Arabs suddenly become altruistic and charge us less for their oil than they can get from importers elsewhere in the world? The OPEC nations detest us and we should expect no mercy once OPEC is again in control of the globe's oil exports. The price of oil will then rise rapidly. Global oil prices are set by competition between oil EXPORTERS - not by U.S. economists. We have no inalienable right to burn up other nations' wealth for our convenience, 5/.

Our Federal oil belongs to the entire country - not to any one group of citizens or businesses - however well-intentioned they may be. The nation is greater than Alaska, Texas, California, Santa Barbara - or any individual or causes. Serious politicians have stated that "the goal of any national U.S. energy policy must be energy security not income maintenance for the oil industry." Can we add thereto the words: "or environmentalists, pet animals and plants - or Californians' ocean views"?

We must drill all known significant oil prospects in the US48 and Alaska - not only to establish where any oil IS, but also to eliminate those "potential" areas where oil is NOT present - so we can make realistic national plans for what actually exists. Environmentalists do not distinguish between EXPLORATION and PRODUCTION platforms. The industry must somehow distinguish the long-term visual impact of the two types of wells. Californians do not want any oil drilling platforms in their front yards. Is there no room to compromise? Or are all parties involved equally obtuse? The odds are very low that any exploration well will discover any oil. If they do not, there will be no platforms or spills therefrom. What are the real chances of making a commercial discovery in say northern California waters? Unfortunately, occasional accidents due to human errors, storms, etc. must always be expected, regardless of how well trained everybody is. Don't forget NASA's Challenger disaster, which occurred in spite of the most intensive training program that could be devised. If the biggest oil company cannot prevent tanker spills - why should we expect better from lesser companies? Smaller (but more) tankers will result in more (but smaller) oil spills. Who will provide insurance under unlimited liability regulations?

Simply put, if environmentalists do not want any oil activity on U.S. lands, then we had all better be willing to reduce our oil use dramatically. Any American conservationist who is really concerned about his children's future welfare should put his money where his mouth is and pay a more realistic gasoline tax as in other industrialized nations, to promote conservation.

REFERENCES

Energy Information Administration, 1989; Annual Energy Review 1988; DOE/EIA-0384(88), Tables 48, 49, Dept. of Energy, Washington, D.C. 20585.
Hubbert, M. King, 1956; Nuclear energy and the fossil fuels; American Petroleum Institute, Drilling & Production Practice (1956), p. 7-25.
Hubbert, M. King, 1982; Techniques of prediction as applied to the production of oil and gas; in NBS Special Publication 631, Oil & Gas Supply Modeling, Proceedings of a symposium held at Dept. of Commerce, Washington, D.C., June 18-20, 1980, Ed. Saul I. Gass; U.S. Dept. Commerce, National Bureau of Standards.
Ivanhoe, L.F., 1986; Scavenger oil production, reserve ratios; Oil & Gas Journal, May 19,1986, p. 81-84.
Ivanhoe, L.F., 1988; Future crude oil supply and prices; Oil & Gas Journal, July 25, 1988, p. 111-112.
Mast, R.F., et al, 1989; Estimates of undiscovered conventional oil and gas resources in the U.S. - A part of the nation's energy endowment; U.S. Dept. of Interior, U.S. Geological Survey & Mineral Management Service, 44p.
Williams, B. 1989; No quick turnaround in sight for Alaskan oil production slide; Oil & Gas Journal, September 25, 1989, p. 2527, October 16, 1989, p. 26-28.
Anon., 1989; U.S. oil resource pegged at as much as 247 billion bbl; Oil & Gas Journal, June 5, 1989, p. 32.