4
Petroleum and Natural Gas

As the use of energy has risen, questions have multiplied about whether adequate supplies will be available to meet demand. The world’s oil still comes largely from giant and supergiant oil fields that were discovered more than 50 years ago, James Schlesinger observed at the summit. Many of these fields are now going into decline, including the Burgan oil field in Kuwait, Canterell in Mexico, the North Sea, and the north slope of Alaska. The Saudis are trying to sustain production in Ghawar, the massive field that provides more than 6 percent of the world’s oil, but sooner or later that field, too, will go into decline.

“We face a painful transition,” said Schlesinger, “to a future in which we hit a limitation, a plateau, in the ability to produce crude oil.” Schlesinger pointed out that the concept of “peak oil”—when production reaches a maximum and begins to decline—is drawn from geological analogies and ignores such things as technology and the impact of price rises. Nevertheless, supplies of petroleum will be increasingly constrained. EIA projections call for the production of conventional oil to rise from the current 86 million barrels a day to about 118 million barrels a day by 2030. “That means that we must find or develop, given the decline curve and higher aspirations, the equivalent of nine Saudi Arabia’s. I think the probability of being that successful is very low,” said Schlesinger.

Furthermore, with many oil and gas fields under the control of national oil companies, access to these resources is becoming more restricted. For example, Russia has reasserted its control over oil production, Schlesinger observed, and the Russians have made it clear that they are not trying to solve the world’s energy problems. Other countries have taken a similar stance: they will develop their resources based on their own self-interests.



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4 Petroleum and Natural Gas A s the use of energy has risen, questions have multiplied about whether adequate supplies will be available to meet demand. The world’s oil still comes largely from giant and supergiant oil fields that were discovered more than 50 years ago, James Schlesinger observed at the summit. Many of these fields are now going into decline, including the Burgan oil field in Kuwait, Canterell in Mexico, the North Sea, and the north slope of Alaska. The Saudis are trying to sustain production in Ghawar, the massive field that provides more than 6 percent of the world’s oil, but sooner or later that field, too, will go into decline. “We face a painful transition,” said Schlesinger, “to a future in which we hit a limitation, a plateau, in the ability to produce crude oil.” Schlesinger pointed out that the concept of “peak oil”—when production reaches a maximum and begins to decline—is drawn from geological analogies and ignores such things as technology and the impact of price rises. Nevertheless, supplies of petroleum will be increasingly constrained. EIA projections call for the production of conventional oil to rise from the current 86 million barrels a day to about 118 million barrels a day by 2030. “That means that we must find or develop, given the decline curve and higher aspirations, the equivalent of nine Saudi Arabia’s. I think the probability of being that successful is very low,” said Schlesinger. Furthermore, with many oil and gas fields under the control of national oil companies, access to these resources is becoming more restricted. For example, Russia has reasserted its control over oil production, Schlesinger observed, and the Russians have made it clear that they are not trying to solve the world’s energy problems. Other countries have taken a similar stance: they will develop their resources based on their own self-interests. 

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2 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE Similar questions surround supplies of natural gas. As Ernest Moniz pointed out, the United States increasingly has turned to natural gas for electricity pro- duction, partly because the capital costs of natural gas plants are lower than those for other energy sources and because natural gas produces lower levels of greenhouse gas emissions than do either petroleum or coal. But the increased use of natural gas has driven up its price. As a result, U.S. manufacturers that have depended on natural gas for direct energy conversion or as a feedstock are being driven overseas. THE HARD TRUTHS ABOUT OIL AND GAS Rod Nelson summarized the conclusions of a major study of the world’s oil and natural gas supplies that was done by the National Petroleum Council (NPC), a federally chartered and privately funded advisory group that repre- sents the oil and gas industries’ views to the federal government (NPC, 2007). In 2005, Secretary of Energy Samuel Bodman asked the NPC to study whether global oil and natural gas supplies can keep pace with growing world demand. Key questions were, What does the future hold for global oil and natural gas supply? Can incremental oil and natural gas supply be brought on line, on time, and at a reasonable price to meet future demand without jeopardizing economic growth? What oil and gas supply strategies and demand-side strate- gies does the NPC recommend that the United States pursue to ensure greater economic stability and prosperity? The NPC study, which examined the period between now and the year 2030, involved a large number of study groups, subgroups, and subcommittees working under the direction of the Committee on Oil and Gas. More than 350 people participated in these groups—with 65 percent coming from outside the oil and gas industry—and more than 1,000 other individuals and groups provided input to the study. The Committee on Oil and Gas developed what it called six “hard truths” about oil and gas (NPC, 2007). The first is that: Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth. (p. 5) As pointed out in Chapter 1, the IEA projects that global energy use will rise from about 450 quadrillion Btu in 2004 to about 700 quadrillion Btu in 2030 (IEA, 2007). The proportional contributions of energy sources do not seem to change much in the projections, Nelson observed, but the total use of energy grows dramatically (Figure 4.1). “The pie is getting bigger,” he said, “by 50 percent. So, in fact, biomass, solar, and wind are growing. In some cases, [they are] tripling or quadrupling in this timeframe.” Also, much of the future growth of energy use will occur in the developing world, which relies heavily

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 PETROLEUM AND NATURAL GAS 1980 2004 2030 288 QUADRILLION BTU 445 QUADRILLION BTU 678 QUADRILLION BTU NATURAL GAS OIL COAL WIND / SOLAR / GEOTHERMAL HYDRO NUCLEAR BIOMASS FIGURE 4.1 The use of energy worldwide is projected to increase 235 percent from 1980 to 2030. SOURCE: Rodney Nelson, National Petroleum Council, “Facing the Figure 4-1.eps Hard Truths About Energy,” presentation at the Summit on America’s Energy Future on March 13, 2008; data from International Energy Agency 2006 reference case (IEA, 2006). on fossil fuels. So wind power in developed countries can increase dramatically without substantially changing its proportion in the total. The second hard truth in the 2007 NPC study is that: The world is not running out of energy resources, but there are accumu- lating risks to continuing expansion of oil and natural gas production from the conentional sources relied upon historically. These risks create significant challenges to meeting projected energy demand. (p. 5) Estimates of oil capacity from both conventional and unconventional sources, such as heavy oil or oil shales, remain large. Humans have used about 1.1 trillion barrels of oil since the dawn of the oil age, Nelson said. Conventional supplies of oil exceed 3 trillion barrels, and the use of unconventional sources of oil could add a substantial amount to that (Figure 4.2). “Quite a bit of oil [is] still left in the ground,” said Nelson. “The more you explore, and the more you learn about the earth, the more you find.” However, oil production is the more relevant measure, Nelson acknowl- edged. The NPC study (NPC, 2007) looked at projections for 2030 made by different organizations, which ranged from 85 million barrels a day (approxi- mately today’s level) to 130 million barrels (Figure 4.3). “Reasonable people

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 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE 6 UNCONVENTIONAL CONVENTIONAL 5 TRILLION BARRELS - OIL 4 ULTIMATE RECOVERABLE RESOURCE (MEAN) 3 2 1 0 1984 1987 1991 1994 2000 FIGURE 4.2 Estimates of the oil resource base exceed 3 trillion barrels for conventional supplies, with unconventional supplies (which were estimated for the first time in the Figure 4-2.eps year 2000) adding a more uncertain but potentially large amount to that base. SOURCE: U.S. Geological Survey (2000). come up with different conclusions here,” he said. “The people at the bottom of the projection spectrum are the people most worried about oil peaking sooner rather than later. . . . The people at the top end of the spectrum tend to be consulting organizations that are doing forecasts of oil supply.” Assumptions in different projections include whether sufficient investments in infrastructure will occur, whether geopolitical events will reduce access to oil, and whether environmental issues will become more pressing. An aggregation of the data yielded a midpoint projection of about 100 million barrels per day. The third hard truth in the 2007 NPC study involves energy sources: To mitigate these risks, expansion of all economic energy sources will be required, including coal, nuclear, renewables, and unconentional oil and natural gas. Each of these sources faces significant challenges—includ- ing safety, enironmental, political, or economic hurdles—and imposes infrastructure requirements for deelopment and deliery. (p. 5)

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 PETROLEUM AND NATURAL GAS 140 120 MILLION BARRELS PER DAY EIA REFERENCE CASE IOC – AVERAGE 100 ASSOCIATION FOR THE STUDY OF PEAK OIL – FRANCE 80 0 2000 2010 2020 2030 YEAR * Average of aggregated proprietary forecasts from international oil companies (IOC) responding to the NPC survey. See Chapter Two (Energy Supply), Analysis of Energy Outlooks, Global Total Liquids Production, for identification FIGURE 4.3 Projectionsshownoil production range from a low of about 80 million bar- of other aggregations and outlooks of here. rels in EIA, International Energyof more than 130 Survey of Outlooks. NOTE: Average of aggregated Source: 2030 to a high Outlook 2006, and the NPC billion barrels. proprietary forecasts from international oil companies (IOC) responding to the National Petroleum Council (NPC) Survey of Global Energy Supply/Demand Outlooks (NPC Survey). For identification of other aggregations and outlooks shown here, see NPC (2007), Chapter 2, sections entitled “Analysis of Energy Outlooks” and “Global Total Liquids Production.” Data from Energy Information Administration, International En- ergy Outlook 200, Office of Integrated Analysis and Forecasting, U.S. Department of Energy, 2006, and the NPC Survey. SOURCE: NPC (2007; Figure ES-9). © National Petroleum Council 2007. Reprinted with permission. The infrastructure requirements Range of Global Oil Forecasts Figure ES-9. Understanding the are particularly demanding, Nelson pointed out. “We have been living off an infrastructure surplus in the energy business that occurred in the late 1970s and early 1980s, and it’s about used up.” The electrical grid infrastructure, the transportation infrastructure, the coal production infrastructure, and other sources’ production and supply sys- tems require attention. “And the size and scale of this business is such that we’re talking about a lot of money,” said Nelson. The 2007 study’s fourth hard truth focuses on energy security: “Energy independence” should not be confused with strengthening energy security. The concept of energy independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by moderating demand, expanding and diersifying domestic energy sup- plies, and strengthening global energy trade and inestment. There can be no U.S. energy security without global energy security. (pp. 5-6) The United States is the world’s largest oil consumer and the third largest oil producer on the planet. But the largest increases in the flow of oil over the next two decades are likely to involve countries in Europe and Asia (Figure 4.4). For that reason, the United States needs to remain closely involved in discussions of the oil trade, Nelson said.

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 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE FIGURE 4.4 Expansion of the oil and natural gas trade will largely involve flows from the Middle East and Russia to other countries in Europe and Asia. SOURCE: NPC (2007; Figure ES-9). © National Petroleum Council 2007. Reprinted with permission.

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 PETROLEUM AND NATURAL GAS The fifth hard truth from the 2007 NPC study involves the energy sector workforce: A majority of the U.S. energy sector workforce, including skilled sci- entists and engineers, is eligible to retire within the next decade. The workforce must be replenished and trained. (p. 6) Since the early 1980s, relatively few young workers have entered the energy sector, Nelson pointed out, and relatively few people are in energy-oriented university programs in the United States (Figure 4.5). Making up the deficit is “not entirely possible from U.S. graduates.” The sixth hard truth identified in the 2007 NPC study deals with carbon emissions. Policies aimed at curbing carbon dioxide emissions will alter the energy mix, increase energy-related costs, and require reductions in demand growth. (p. 6) This sixth NPC finding may not seem very dramatic given the current concerns about climate, Nelson said. “But I would remind you that this is the oil industry telling you this, and this was not, I would say, the generally held view 2 years ago.” OVER HALF OF THE WORKFORCE ELIGIBLE TO RETIRE IN NEXT 10 YEARS 25 AGE DISTRIBUTION % OF U.S. WORKFORCE 20 15 10 5 0 20 25 30 35 40 45 50 55 60 65 70 AGE FIGURE 4.5 More than half of the energy sector workforce will be eligible to retire in the next 10 years. SOURCE: U.S. Department of Labor. Figure 4-5.eps

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 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE CONFRONTING THE HARD TRUTHS The NPC’s Committee on Oil and Gas laid out five core strategies for the United States to pursue (NPC, 2007): • Moderate demand by increasing energy efficiency. • Expand and diversify the U.S. energy supply. • Strengthen global and U.S. energy security. • Reinforce capabilities to meet new challenges. • Address carbon constraints. Each of these topics is discussed in parts III and IV of this report. Nelson’s overall conclusion at the summit was that the challenge currently facing the United States regarding oil and natural gas is unprecedented. Meeting that challenge will require global efforts on multiple fronts, long time horizons, and major additional investments. There is no single easy solution, he said. Individu- als, organizations, and governments need to begin taking action now and plan for a sustained commitment.