Editorial: Innovation and surprise

April 19, 2010
A tenet of energy thinking in Europe and the US holds that innovation will rescue developed economies from their dependence on fossil energy and should be encouraged to do so.

A tenet of energy thinking in Europe and the US holds that innovation will rescue developed economies from their dependence on fossil energy and should be encouraged to do so. Technology, according to this way of thinking, can yield energy with nearly all the benefits of oil, gas, and coal and fewer of the disadvantages—mainly resource depletion, greenhouse gases, and, in the case of oil, domination of supply by unfriendly regimes.

Adherents to this view promise an energy revolution, the broad displacement of hydrocarbon energy with modern fuels that are—well, different and therefore presumably superior, however more costly. The revolution awaits only the application of political will—meaning the expenditure of public money. That it hasn't happened reflects an insufficiency of political will and, by association, spending. This view is manifest in European policies aimed at "decarbonizing" energy and in a US budget proposal intent on "creating the clean energy economy of tomorrow."

Indeed, innovation and change are at hand. But they might not be what government energy planners imagine.

Oil supply surprises

Surprises are taking shape in future oil supply. While it's too early to count barrels, and while the outlook depends on unsure assumptions, much more oil might be available 10 years from now than policy-makers generally assume.

Iraq, for example, acts determined to become a viable democracy despite continuing violence. If it succeeds and solves its security problems, the country might quadruple its production by 2020. In terms of oil supply, the world then would have another Saudi Arabia.

Technical service contracts signed recently by the Iraqi government call for production increases totaling more than 11 million b/d over the next decade. With that gain and production elsewhere in the country, Iraq theoretically could be producing 12-14 million b/d by about 2020. Security threats and logistical constraints will impede expansion. But even half the theoretically possible level of growth would affect markets.

Political evolution also has improved the supply outlook in the US. The administration of Barack Obama is allowing oil and gas leasing to proceed in federal waters off Florida and Virginia and will study leasing off the middle and southern Atlantic states. The affected areas represent a technically recoverable resource postulated at 39-65 billion bbl. Resource isn't the same as supply, which depends on leasing, drilling, discovery, and development. But a formerly off-limits resource at least has the chance to become supply.

Innovation blends tantalizingly with political evolution on another front. Pressure to cut emissions of carbon dioxide has long been seen as an opportunity to increase oil production via injection of captured gas. The US Department of Energy's National Energy Technology Laboratory and Advanced Resources International Inc. recently assessed potential for new CO2 recovery in the US. Focusing on fields amenable to injection because of size, location, and reservoir characteristics, their models put oil technically recoverable with current technology at 47 billion bbl—more than double current US reserves. "Next-generation" improvements to CO2 EOR might push the recoverable number to 77.6 billion bbl (OGJ, Apr. 12, 2010, p. 52).

Meanwhile, reports are emerging of successful oil completions in shales other than the prolific Bakken formation in North Dakota and Montana. From its leases in the Eagle Ford shale play of South Texas, EOG Resources Inc. recently said it might be able to recover 900 million bbl of oil net of royalty. Whether oil shales can deliver the spectacular results gas shales have in recent years remains to be seen. It's not too soon, however, to observe that drilling and completion innovations have uncapped a new realm of potential oil supply—maybe a very large one.

Supply not certain

Major new oil supply is not certain from any of these sources. Iraq might sink back into paralyzing violence. Technology might not migrate as readily among unconventional oil reservoirs as it has with gas shales. Still, the possibility is undeniable for oil-market conditions wholly at odds with the depletion-obsessed pessimism guiding energy politics these days.

Among other things, those conditions would make subsidies for uncompetitive energy impossible to sustain.

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